Intuitive Surgical, Inc. (ISRG Quick QuoteISRG – Free Report) is well positioned for growth in the coming quarters thanks to its strength in robotics. Optimism generated by solid results in recent quarters and its advances in artificial intelligence (AI) should continue to contribute to this. However, risks to process adoption and strong competition remain.

Shares of this Zacks Rank #1 (Strong Buy) company have risen 42.3% year to date, while the industry has grown just 5.5%. The S&P 500 Index has gained 14.4% during the same period.

Intuitive Surgical, the pioneer of robot-assisted surgery and renowned provider of minimally invasive treatments, has a market capitalization of $167.45 billion and is expected to grow by 17.4% over the next five years.

The company’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, generating an average surprise of 8.97%.

Image source: Zacks Investment Research

Let’s dive deeper.

Strength in robotics: We are optimistic about Intuitive Surgical’s da Vinci robotic surgery system, which enables minimally invasive surgery and reduces the trauma associated with open surgery. The minimally invasive nature of robotic surgery should continue to move patients from conventional methods to ISRG’s da Vinci systems and other platforms.

Continued growth in treatment volume, higher prices for treatments and more system placements are likely to increase the company’s revenue in the future. Meanwhile, the launch of ISRG’s newest robotic system, da Vinci 5, reflected strong demand for the company’s new system. Following the launch of da Vinci 5 in March, the company placed 70 units in the second quarter, compared to eight in the first quarter. In addition, the FDA’s label expansion for da Vinci X and Xi specifically for radical prostatectomy is expected to drive additional revenue in the future.

In its second quarter 2024 earnings call, ISRG said the da Vinci system installed base increased approximately 14% year over year. Clinical system usage in the area, measured by procedures per system, increased 2% from the year-ago quarter level.

Intuitive Surgical’s Ion Modulation System has delivered solid numbers since its launch in 2019. The company placed 74 Ion Systems compared to 59 last year and 70 in the previous quarter. Procedures performed with the Ion System increased 82% in the second quarter, consistent with the strong trend seen in recent quarters. The supply chain issue limiting Ion System sales also improved over the period, suggesting potentially higher placements and procedures in the next few quarters.

Progress on the AI ​​front: We also see the increasing adoption of minimally invasive robot-assisted surgery, self-automated home care, the use of information technology for rapid and improved patient care and the shift in the payment system to a value-based model as positive. These developments indicate the high adoption of AI in the MedTech sector.

According to management, the rise of medical mechatronics, powerful computers, improved sensing, microfabrication and molecular imaging has enabled new solutions to old problems. AI has expanded Intuitive Surgical’s product portfolio to include clinical applications, diagnostic support, operational efficiency, electronic medical record systems, practice workflows and supply chain management.

Strong results in the second quarter: ISRG’s solid second quarter results also provide cause for optimism. The robust earnings performance was driven by improved gross and operating margins. Gross margin benefited from lower product costs for ISRG’s latest platforms, Ion and SP, coupled with lower inventory levels, cost reductions in certain purchasing components, lower freight rates and fixed cost leverage. Operating margin improved due to the continued benefit of planned leverage in enabling capabilities related to robotic surgery. The declining trend in operating expenses is expected to continue for the remainder of 2024. Intuitive Surgical expects its key revenue driver, procedure volume, to show growth of 14-17% in 2024.

Disadvantage

Macroeconomic challenges continue: Intuitive Surgical may see slower procedure growth in the second half of the year, reflecting the increasing impact of weak demand for bariatric procedures and increasing headwinds in Asia due to prolonged doctors’ strikes in Korea, delayed tenders and new domestic robotic systems in China.

The Company expects the above factors to impact its revenue growth by nearly three percentage points in 2024. At the same time, any increase in supply chain issues amid ongoing geopolitical tensions may result in inconsistent placement of the da Vinci 5 system in 2024. Difficult catheter supply may negatively impact ion modulation system sales.

Estimated trend

Over the past 30 days, the Zacks Consensus Estimate for 2024 earnings has improved 6.5% to $6.67 per share.

The company’s revenue is estimated at $8.10 billion by consensus, representing an improvement of 13.7% over the figure reported in the same quarter last year.

Other stocks to consider

Some other high-ranking stocks in the broader medical space that have announced quarterly results are DaVita (DVA Quick QuoteDVA – Free report), Aspen Technology (AZPN Quick QuoteAZPN – Free report) and Universal health services (UHS Quick QuoteUHS – Free Report), all of which currently carry a Zacks Rank #1. You can find the complete list of today’s Zacks #1 Rank stocks here.

DaVita has an estimated long-term growth rate of 17.5%. DVA’s earnings beat estimates in each of the last four quarters, with the average surprise being 24.2%.

DaVita shares have risen 39.2% year-to-date, compared to industry growth of 11%.

Aspen Technology has an estimated long-term growth rate of 13.1%. AZPN’s earnings beat estimates in two of the last four quarters and fell short of them twice. The average surprise was 4.24%.

Aspen Technology shares have lost 3.1% since the beginning of the year, while the industry has grown 9.2%.

Universal Health Services has an estimated long-term growth rate of 19%. UHS’s earnings beat estimates in each of the last four quarters, with the average surprise being 14.58%.

The company’s shares have risen 44.7% year-to-date, compared to industry growth of 34.9%.