In times of economic volatility, healthcare stocks serve as safe havens. That's because, despite macroeconomic pressures, the healthcare industry consistently remains in high demand.
And as artificial intelligence (AI) technology becomes more sophisticated, it has the potential to transform how healthcare improves the lives of patients. AI is paving the way for a more efficient and effective healthcare system, which could benefit companies like Intuitive and GE Healthcare in the long run.
Despite macroeconomic pressures, the market still appears to be recovering this year, with the S&P 500 Index ($SPX) up 13.8%. While Intuitive Surgical (ISRG) and GE Healthcare (GEHC) stocks haven't climbed as much as tech stocks this year, Wall Street believes that with AI advancements in healthcare, these stocks have more upside.
Intuitive Surgical
In just 28 years in business, medical device company Intuitive Surgical has become the leader in the minimally invasive surgery (MIS) market. Its crown jewel, the da Vinci robotic surgical system, has a monopoly, with a market share of more than 70%. It provides surgeons with greater precision, resulting in better outcomes and less recovery time for patients.
In comparison to the market, Intuitive's stock has risen just 5.5% so far in 2023. Now, it is trading nearly 22% below its 52-week high.
In its recent Q2 ended July 20, surgical procedures using the da Vinci system globally jumped by 22% year-over-year. The company installed 8,042 da Vinci systems in the quarter, a 13% year-over-year increase. Longer-term, that's impressive growth from 4,986 systems installed at the end of 2018.
Notably, Intuitive also earns recurring revenue from the sale of instruments and accessories used by da Vinci, which increased 20% year over year to $1.08 billion, accounting for 61% of total revenue.
Overall revenue increased by 15% to $1.76 billion, while diluted earnings per share (EPS) grew by 39% compared to Q2 2022. Intuitive believes that with technological advancements and AI, there is enormous potential in the field of robotic surgery. The incorporation of AI may increase demand for robotic-assisted MIS, boosting Intuitive's revenue and profits. Between 2023 and 2032, the global robotic surgery market is expected to grow at a compound annual growth rate of 9.1%, reaching $188.8 billion.
What are Analysts Saying About ISRG?
For Q3, analysts predict Intuitive’s EPS to come in around $1.13 while revenue could be $1.77 billion. This would imply earnings and revenue growth of 25.6% and 13.5%, respectively, from Q3 2022. Intuitive has surpassed Wall Street's earnings estimates in its last two quarters. The company will report its Q3 earnings on October 19.
Looking ahead, analysts expect Intuitive’s revenue to increase by 15% to $7.14 billion in 2023, up from $6.2 billion in 2022. Analysts are looking for revenue to further grow to $8.16 billion by 2024.
Additionally, Wall Street anticipates Intuitive’s profits to keep rising, as well. Compared to EPS of $3.65 in 2022, analysts foresee an EPS increase of 24% to $4.53 in 2023, and 15% to $5.22 in 2024.
Wall Street remains bullish on the robotic surgical leader. Out of the 21 analysts covering ISRG stock, 13 recommend “strong buy,” two recommend “moderate buy,” and six recommend “hold.” None recommend selling the stock.
The average price target for ISRG is $364.94, which is 30% above current levels. The high target for the stock is $400, and the low target is $270.
GE Healthcare
GE Healthcare stock has gained 15.5% this year to edge past the broader S&P 500. Notably, the stock is trading 23% below its 52-week high, creating an excellent opportunity for astute investors to buy it on the dip.
GE Healthcare provides a wide range of products and technologies to improve patient care, including MRI scanners, CT scanners, ultrasound devices, X-ray systems, and other patient care solutions. GE’s diagnostic imaging technologies allow for early and accurate disease detection, resulting in better treatment planning and outcomes. With the adoption of AI, diagnostic speed and accuracy could be further enhanced.
Notably, its Edison platform - an AI-powered ecosystem = uses AI to aggregate data to enhance diagnostics, patient management, and operational efficiency.
GEHC has also made significant collaborations and partnerships to strengthen its stance in the healthcare industry. Recently, the company incorporated an AI-driven technology feature, Caption Guidance, into its Venue ultrasound systems. The company hopes that this tool will aid in the early detection of heart disease symptoms in at-risk patients. It also acquired Caption Health, a privately-owned AI healthcare company, in early 2023. In the list of more than 500 U.S. FDA-authorized AI-enabled devices, 42 belong to GE Healthcare.
In 2022, its total revenue grew to $18.3 billion from $17.5 billion in the prior year. Its recent second quarter, ended June 30, yielded revenue growth of 7% year-over-year to $4.8 billion. Management anticipates full-year revenue growth in the 6% to 8% range, with EPS increasing by 9% to 14% compared to 2022.
GEHC also hopes to generate 85% of its earnings as free cash flow, which should support its dividend payments. Recently, it announced a Q3 dividend of $0.03 per share and has a dividend yield of 0.09%. While the yield isn't enticing on its own, with profits rising, chances of dividend increases are likely.
What Are Analysts Saying About GE Healthcare?
For Q3, analysts predict GEHC’s EPS to be $0.90, while revenue could be $4.8 billion. GE has beaten consensus earnings estimates in its last two quarters. The company could release its Q3 earnings this month.
From $18.3 billion in revenue in 2022, analysts expect GE Healthcare to report top-line growth of 6.5% to $19.48 billion in 2023, followed by an increase to $20.4 billion in 2024.
Compared to an EPS of $4.63 in 2022, analysts foresee EPS of $3.80 in 2023 and $4.31 in 2024. Priced at 18 times forward earnings, GE Healthcare stock seem cheap at current levels.
Out of the 11 analysts covering GE Healthcare stock, six recommend “strong buy,” and five recommend “hold.” The average price target for GE Healthcare is $88.67, which is over 31% higher than current levels.
In conclusion, both Intuitive Surgical and GE Healthcare are making significant strides in the healthcare space. With growing revenue and profits, robust balance sheets, brand strength, and innovative applications of AI, both are poised for a lucrative future in the healthcare domain.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
