Intuitive Surgical stock is Wednesday's IBD Stock Of The Day. Shares gapped higher following the robotic surgery titan's September-quarter beat and are now staring down a fresh buy point.
The company is best-known for its robotic surgery system, da Vinci. Intuitive Surgical is also in the midst of launching its newest system, the da Vinci 5. The key question, says William Blair analyst Brandon Vazquez, is whether Intuitive can deliver on heightened expectations.
"We believe the answer is yes with near-, medium- and long-term tailwinds to support shorts," he said in a recent report to clients.
Intuitive Surgical stock gapped up from its 50-day and 10-week lines following the company's third-quarter report on Oct. 18. Shares are pausing just above a tight area that forms a quasi flat base. Investors can use an Oct. 25 high of 516.89 as an entry.
Procedure Growth Push Intuitive Surgical Stock
The third quarter featured a number of promising updates.
The number of procedures performed using da Vinci robotic surgery systems climbed 18%. Investors pay close attention to this number because when more procedures take place, consumers buy more single-use instruments and accessories. Sales of those tools also surged 18% in the quarter, hitting $1.26 billion and beating expectations.
Intuitive Surgical also placed 110 da Vinci 5 robots in the third quarter, accelerating from 70 in the second quarter. In the U.S., half of the robot placements were from the new system, Vazquez said. The installed base of Ion robots — which perform lung biopsies — popped 50%.
"In the near term, procedures are benefiting from growing acceptance of robotics beyond historical core procedures into a (total addressable market) still only about 10% penetrated, as well as da Vinci 5 that will provide another leg of incremental hospital demand," William Blair's Vazquez said.
Medium term, the company has hinted at software and hardware launched that could help drive adoption. And, in the long-term, these tailwinds could help drive additional trade-ins of older da Vinci systems for the newer 5, he said. He kept his outperform rating on Intuitive Surgical stock.
'Full Ramp Mode' Ahead For da Vinci 5
For the year, Intuitive now expects da Vinci procedures to grow 16% to 17%.
The next year will feature a "gradual ramp" following by "full ramp mode" in mid-2025 for da Vinci 5, Evercore ISI analyst Vijay Kumar said in a report.
Though the results looked solid, Kumar questioned the value of Intuitive Surgical stock. The stock's price/earnings multiple has expanded by more than 60% from pre-pandemic levels on a forward basis. But the revenue outlook has stayed consistent vs. 2017 to 2019 levels. Operating margins continue to surprise to the upside.
"Generally, growth stock price/earnings are driven by revenue acceleration and not operating margins," he said. "It seems like the Street is pricing in a big revenue beat for fiscal year 2025."
He kept his in-line rating on Intuitive Surgical stock, but raised his price target to 490 from 475.
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