Piper Jaffray Cautious on Intuitive Surgical (ISRG)

Piper Jaffray analyst, Matt O'Brien, is out with a cautious note on Intuitive Surgical (NASDAQ: ISRG) due to the potential impact from competition combined with a high valuation. The analyst states that procedure growth is likely to be stronger than expected near term but describes how its fastest growing target market is threatened by increasing competition relying on undercutting price. No change to Neutral rating or $550 price target.

Out of the 6 companies developing robotic systems that the analyst reviewed, 4 of them are focused on general surgery applications. This is 20% of ISRG’s case volume last year but is expected to be Intuitive’s fastest growth procedural area over the next couple of years. Most of the competitors are looking to capture share by offering lower per procedure costs for their systems.

Although some of the systems are available today and more will be on the market next year, we anticipate the impact to Intuitive will likely begin in 2018. However, they believe these new systems will likely get the most traction in more capital constrained hospitals and ASCs rather than materially displacing ISRG. There is the potential for ISRG’s system pricing to be impacted, along with new system placements in Europe and replacements here in the United States (given the company’s large existing installed base, hundreds of systems come up for replacement each year).

Valuation keeps the analyst at a Neutral rating even though he expects upside to procedure numbers in ‘16. Competition will dampen Intuitive’s growth trajectory everso-slightly in the coming years but he still expects it to be able to grow in the upper single digits on the top-line. For 2016, he believes the company’s procedure guidance (9%-12%) will prove conservative as general surgery growth should remain brisk. However, the stock looks expensive at 28x 2016E earnings (30x when removing $4.50 per share in stock-based comp and $100 of expected cash per share),

For an analyst ratings summary and ratings history on Intuitive Surgical click here. For more ratings news on Intuitive Surgical click here.

Shares of Intuitive Surgical closed at $603.07 yesterday.

You May Also Be Interested In

• Tesla to launch Cybercab in Austin this month - report
• Benchmark Reiterates Buy Rating on Odysight.AI Inc. (ODYS)
• BofA sees Micron EPS topping $230 by FY30, calls peak fears overblown