Is Intuitive Back On Track? (ISRG)

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We wrote about our investment in the struggling robotic surgery equipment manufacturer in October of last year as a result of some fortunate luck in a buy-out from another medical equipment manufacturer.  With 2014 Q2 results out last week, I’ve been debating about whether or not to add more to our position.

At a Glance:

Symbol: US-ISRG
Price: $465.29
Market Cap: $16.75B
Yield: N/A
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It’s been a bumpy and volatile ride as a shareholder of this company.  As shown in the chart below, we experienced some run up in price going into year-end results for 2013 where the company reported growth across all three segments (systems, accessories, services) from the previous quarter.  This was then followed up with the announcement that the company had received FDA approval for its newest model – the da Vinci Xi – sending the stock soaring near it’s all time high.  That high was short-lived at only about a week, as the company then announced preliminary 2014 Q1 results and it wasn’t pretty – significant lower revenue across all segments (flat in services), terrible year over year numbers.

However, the stock got a bump up again last week with Q2 earnings – numbers were still down year over year, but apparently, less than expected and up sequentially.  Procedure growth was also up 9% year over year and sequentially as well – while still a far way from the double-digit growth rates the company experienced in the past.

ISRG Stock Price Oct-2013 to Jul-2014 Source: Google Finance

ISRG Stock Price Oct-2013 to Jul-2014
Source: Google Finance

 

To be honest, I didn’t really expect quite the bump in share price after reading earnings.  Positives was definitely the 9% procedure growth and that 50 out of the 96 machines sold were the new model.  This seems to indicate that while there’s still the overhang of last year’s questions of safety and surgery mishaps, surgeons and hospitals are still looking to use the machine.   However, as the chart below shows, revenue has been quite lumpy since the start of 2013 (and still is) –  definitely a break from the continuing upward trend (quarter over quarter, and year over year) of pre-2013.  System sales were down 33% from last year (better than the -60% in Q1), but accessories and services revenue year over year were both consistent with Q1.

ISRG Revenue Breakout 2004 to 2014

ISRG Revenue Breakout: 2004 to 2014

 

So, to end this quick post, while I am happy to get a little bump in price, I’m going to need to see a little more consistency that the company has truly dodged the stigma of last year.  I’m not quite on board yet with adding to our position – I might be buying shares back later at a higher price, but I’m happy with the amount of “skin in the game” we have today but will definitely be looking to add more if any of the following occur:

  • sell-off / drop in share price (unless something terrible has happened in terms of competition, business model, or negative news)
  • double-digit growth in procedures
  • revenue starts consistently trending upward
  • FDA approval of da Vinci use for other procedures

 

Disclaimer: The author owns shares of ISRG.  A full list of holdings can be found here.

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4 thoughts on “Is Intuitive Back On Track? (ISRG)

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