Wednesday, October 20, 2010

Intuitive Surgical (ISRG) - The Stock Knew

As I mentioned yesterday, I was curious to see if Intuitive Surgical (ISRG) would disappoint as this stock has been a (relative) dog the entire rally.  And an absolute one the past month.  Very few S&P 500 stocks (or any type of stock) have not taken part in the 7 week rally, and this is especially true of any 'high growth' stock.   Yet ISRG could not catch a real bid after mid September; in fact this has been the only stock I've been able to successfully make money shorting with a more than 2 day time horizon the past month and a half.  As Gordon Gekko says the most powerful commodity is information and with 'loose lips' and winks and nods all over Wall Street, I believe a lot of information is disgorged into the market that most of us will never have a chance to receive.  This information is displayed in the charts....   Stocks that are completely lost to sea in a market hopped up on stimulants are generally telling us something, and Intuitive did not disappoint (in flailing) last evening.

The stock is off the lows of the after market when it was trading in the $250s but now sits in the $260s.... that price would rescind the whole move (however small) off the late August 2010 lows, and complete a 'round trip'.  If ISRG can hold that level and break through the 200 day moving average with some verve, the bad news might be finally priced into the stock and make it more appealing from a technical perspective.

I still like this name long term, but I received many comments on how it made no sense to short the company for any number of fundamental reasons.  Most of those reasons were valid for a 3 year time horizon but irrelevant in the near term. Please note I was not short going into earnings because I don't like bipolar outcomes of earning reports.

Via Reuters:

  • Intuitive Surgical Inc (ISRG) on Tuesday reported better-than-expected third-quarter profit on increased demand for its high-priced da Vinci surgical systems, but procedure growth was a bit below analysts' estimates. The results also failed to build on Intuitive's surprisingly strong second quarter, causing some investor disappointment. 
  • "Right now this is a procedure volume story," said Spencer Nam, an analyst for Madison Williams. "The Street actually thought that the third quarter was going to be even better in terms of the number of procedures than the second quarter, but it turned out the third quarter was not as good, so that weakness is really taking the shares down," Nam said. 
  • Da Vinci procedure growth for the quarter was 33 percent, while analysts were looking for growth at least equal the previous quarter's 36 percent.
  • Intuitive said it continues to expect full-year revenue growth of 30 percent to 33 percent and procedure growth of about 35 percent. "It seems they have strong expectations for the fourth quarter," Nam said.
  • Systems sales rose to $160 million from $136 million in the year ago quarter, but that was $8 million less than in the second quarter, with three fewer da Vinci systems sold.
  • Net profit rose to $87 million, or $2.14 per share, from $65 million, or $1.64 per share, a year ago. That topped analysts' average expectations by 4 cents, according to Thomson Reuters I/B/E/S.
  • Intuitive sold 105 da Vinci systems during the quarter, up from 86 a year ago. That included 45 systems sold to repeat customers. The newer da Vinci systems cost about $1.4 million each and carry higher annual service fees than the older models.
  • Revenue for the quarter rose nearly 23 percent to $344 million, just shy of Wall Street estimates of $349.5 million.
  • Instruments and accessories revenue rose 27 percent to $128 million.

The bread and butter prostate procedure which was the original nexus of the story is slowing in the U.S. so the key go forward is further expansion of types of procedures and international expansion.
  • Prostate procedures, once the meat and potatoes of da Vinci use, have leveled off in the United States, the company said. It is looking to Europe and Asia for prostatectomy growth, but said the capital spending environment in Europe "continues to be challenging."
  • Japan is seen as a significant future growth area for Intuitive, but business cannot take off there until reimbursement for the robotic procedures is approved. The company said it is working on gaining reimbursements in Japan, but that they have to be negotiated procedure by procedure, beginning with prostatectomy. It said it does not see broad reimbursement in Japan in the next six to 12 months. Once that comes, Nam said, "I believe there's going to be a pretty rapid adoption of (da Vinci) systems in Japan."

No position

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