Intuitive Surgical (ISRG) Still Mum on Citron Report, But Analysts Weigh-In

December 20, 2012 5:02 PM EST
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Price: $656.75 -0.2%

Rating Summary:
    22 Buy, 10 Hold, 2 Sell

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    Up: 30 | Down: 30 | New: 23
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In a follow-up to an earlier article...

Down 11 percent over two days, Intuitive Surgical, Inc. (NASDAQ: ISRG) would not comment to on the attack from short selling website Citron Research. However, the company is pointing us to two analyst reports, one from Raymond James and the other from Lazard Capital Markets, discussing the matter.

  • First, Raymond James analyst Lawrence Keusch said that after reviewing the Citron report they would not consider it to have any meaningful new information.

    Addressing the short thesis: (1) New lawsuits filed - with over 1 million procedures performed with da Vinci, the safety track record is solid. That said, there will always be some surgical outcomes that are not ideal and law suits could be filed, including the 10 in the short report. That should be expected in the medical device industry. (2) Disgruntled employees - clearly, there are going to be some, especially in an organization like Intuitive that is goal oriented and focused on execution. However, we would not rely on chat rooms as a reliable source of information, especially as anyone can post their opinion. (3) Hospitals that utilize da Vinci get higher reimbursement, so insurance will push back - Medicare does not provide higher reimbursement for robotic surgery. Therefore, the usage of da Vinci is driven by volume gains at hospitals, surgeon preference, and reduced morbidity or length of stay. (4) Selling by a chairman - raises questions, but he is 70 years old, has not been CEO for almost 3-years, and tax rates are going higher. (5) Skepticism regarding the cost-benefit analysis of robotic surgery - valid, but is not new information."

    The firm reiterated an Outperform rating and $620 price target on Intuitive Surgical.

  • Lazard Capital Market's Sean Lavin disagreed with much of what Citron said, but not all.

    Citron Research has a very strong track record of successfully picking shorts.This report is different than most (he says so himself). Usually, they detail small-cap companies that they believe are committing fraud. In this case, he's gone after valuation, over-marketing, lack of data, etc. He is not claiming fraud. He claims ISRG over-markets. We are not sure how one defines over-marketing, but we believe Intuitive does significant marketing. We also believe investors know this. He
    claims a lack of data and cites some articles that show robotics to have equal or bad outcomes. We think he is cherry-picking here. There are hundreds of articles with compelling data. It is very unlikely that a company can sell 3,000+ $1M+ machines and have 5,000+ surgeons using them without compelling outcomes.

    The firm maintained an Neutral rating on Intuitive Surgical.

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