Analysts Unfazed By Intuitive Surgical's Higher Opex Guidance

Intuitive Surgical, Inc. ISRG reported Thursday after the market close with higher fourth-quarter non-GAAP earnings per share — which fell short of expectations — and revenue that was slightly ahead of estimates.

The Analysts

• Morgan Stanley analyst David Lewis reiterated an Overweight rating and $620 price target for the shares of Intuitive Surgical.
• Piper Jaffray analyst JP McKim maintained an Overweight rating and $625 price target.
• RBC Capital Markets analyst Brandon Henry has a Sector Perform rating and $560 price target.

Morgan Stanley: Extra Spending To Generate Solid Returns

Underlying trends for Intuitive Surgical remain strong, with the company notching its fifth consecutive quarter of procedure momentum acceleration and more than 30-percent growth in gross system placement, Morgan Stanley's Lewis said in a Friday note.

If a $25-million contribution to the Intuitive Foundation were excluded, Intuitive's operating margins and EPS would have exceeded expectations, the analyst said.

The robotic surgical equipment manufacturer's 2019 operating expense growth expectations of 20-28 percent are about 5 percent higher than Morgan Stanley's expectation at the midpoint, Lewis said. 

"While we are modestly raising our gross placement numbers in 2019 and 2020 to 1,108 and 1,184, our EPS estimates were reduced 5 percent and 4 percent, driven largely by additional investments." 

Piper Jaffray: Buy The Dip 

Buying the dip in the stock after Intuitive's Q4 2017 print would have generated a 12-month return of 89 percent, McKim said. Buying the dip after the Q4 print in 2018 would have brought a 22-percent return, he said. 

McKim named the following reasons for buying the weakness in Intuitive stock after the quarterly report: 

• The company's guidance is conservative on all fronts.
• It's at the beginning of two key product launches: SP and Ion.
• Above-average growth in Japan and China is likely. 

RBC: Increased Spending To Help Expand Market

Intuitive Surgical's momentum continued into Q4, Henry said in a note. To account for the increased guidance for operating expenses, RBC lowered its EPS estimates.

The company's higher spending is earmarked for growth-oriented initiatives, the analyst said. 

This will help Intuitive expand its total addressable market and remain the premium player in the surgical robotics market, Henry said. 

The Price Action

Intuitive Surgical shares were trading down 2.23 percent at $524.14 at the time of publication Friday. 

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