We reiterate our Neutral rating for Intuitive Surgical (ISRG). Earnings per share came in at $3.75, beating the Zacks Consensus Estimate of $3.34 and the year-ago earnings of $3.02. Net income climbed 24.8% year over year to $151.2 million.
Revenues increased 28% year over year to $496.8 million, beating the Zacks Consensus Estimate of $483 million.
Instruments and accessories revenues were $196 million in the quarter, up 30% year over year. Worldwide procedures increased 27%. The company posted total systems revenue of $225 million in the quarter, up 27%. Services/Training revenues were $75 million in the quarter, up 24% year over year, primarily due to growth in the installed base of da Vinci Surgical systems.
The company issued a favorable guidance for fiscal 2012. Total procedure count is forecast to increase between 24% and 26% for fiscal 2012. Revenues are expected to rise 17% to 19% for fiscal 2012. Operating income is projected in the range of 39% to 40% of revenues, which is in line with recent experience.
We expect a number of procedures that are currently completed either in an open surgical manner or with laparoscopy to be eventually replaced by da Vinci surgery, as robotic surgery becomes the standard of care in many instances. The company enjoys a virtual monopoly in robotic surgery with little competition.
Intuitive’s recurring revenue stream continues to grow and provides a shield against cyclicality of revenues, arising from the sale of discretionary capital equipment to hospitals. However, we believe that until the global economy recovers, the stock may come under pressure as investors ponder whether lingering macro economic uncertainty weakens hospitals’ commitment to buy high-cost robotic systems.
The pace of adoption of robotic surgery may therefore be lumpy and growth in usage requires acceptance from patients and training to medical practitioners. Intuitive competes with Accuray Incorporated (ARAY) in certain niches.
We prefer to remain on the sidelines partly due to a high valuation, which factors in the attractive growth prospects of the company, despite the da Vinci system’s leading status as an enabler of robotic minimally invasive surgery. The stock currently retains a Zacks #1 Rank, which translates into a short-term “Strong Buy” recommendation.
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