Raymond James Stays Bullish As Intuitive Surgical Falls On Quarterly Results: 'We Would Buy On Any Weakness'

Shares of robotic surgical systems maker Intuitive Surgical, Inc. ISRG were tumbling below the $500 handle Monday for the first time since late January following the release of its quarterly results after the close Thursday. 

The Analyst

Raymond James analyst Lawrence Keusch maintained an Outperform rating on Intuitive Surgical and lowered the price target from $630 to $610.

The Thesis

Intuitive Surgical's first-quarter EPS missed estimates by 3 percent, but revenues were largely in-line, Keusch said in a Monday note.

Strong underlying system placements were offset by operating leases, the analyst said. 

First-quarter leases depressed revenues by an estimated 3.5 percent, obscuring strong fundamentals, including 18-percent procedure growth and 235 system installations, Keusch said. 

"Indeed, the net impact of the greater number of leases vs. our assumption was $30M less revenue, or 3.5% y/y growth, implying the top-line would have handily exceeded Street estimates." 

That said, the analyst views the operating lease strategy as prudent for several reasons, including "ease of upgrade, smoother revenue cadence and standardization on Gen 4-systems/higher instrument mix."

Intuitive Surgical raised its 2019 procedure guidance from 13-17-percent growth to 15-17-percent; maintained its gross margin guidance at 70-71 percent; and narrowed its opex guidance from 20-28 percent to 24-28 percent due to the strength of spending in the first quarter.

Raymond James lowered its sales and EPS guidance for 2019 and 2020 and maintained its 2019 procedure growth estimate.

The guidance reduction assumes a higher estimate for systems to be sold on operating leases, Keusch said. 

Raymond James' positive thesis is unchanged and includes a multiyear new product cycle, geographic expansion and robotic surgery moving into mainstream adoption.

"Indeed, we would buy any weakness in the shares on the 1Q print as we anticipate that concerns related to optics of the in-line revenues are unlikely to persist," the analyst said. 

The Price Action

Intuitive Surgical shares were sliding 6.48 percent to $493.85 at the time of publication Monday. 

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