Will Intuitive Surgical (ISRG) Disappoint in Q3 Earnings?

Intuitive Surgical’s ISRG third-quarter results, scheduled for release on Oct 19, are expected to show steady growth in instruments and accessories revenues — one of the major revenue components. While this could majorly drive its third-quarter earnings, an expected improvement in revenues at all other segments should help the company generate solid results this season.

It is important to note that Intuitive Surgical delivered positive earnings surprises in the past four quarters, the average being 7.8%. Similar to the prior quarter, strong procedure growth and increased sales of stapling and vessel sealing products are expected to be the main factors driving the surge in instrument and accessories revenues.

The Zacks Consensus Estimate for instrument and accessories revenues stands at $394 million for the third quarter. This reflects an increase of 13.2% from the year-ago quarter. Continued development in European markets, solid access to the company’s products in Asia and new platforms in imaging and advanced instruments are likely to drive revenues at the segment.

Intuitive Surgical, Inc. Price and Consensus

 

Intuitive Surgical, Inc. Price and Consensus | Intuitive Surgical, Inc. Quote

Other Factors at Play

We believe that the growing adoption of Intuitive Surgical’s da Vinci system among physicians for general surgery, oncology, urology and gynecology procedures is a catalyst for the third quarter. Overall, Q3 revenues are expected at around $752.3 million, up 10.2% from the prior-year quarter. Below are the other factors that might influence Intuitive Surgical’s quarterly results this earnings season.

Solid Procedure Trends: Expectations of outperformance in the Mature and Growth procedures, especially in general and thoracic surgery, is likely to boost the company’s top line. Added to this, solid growth in prostatectomy procedure volumes is likely to lend Intuitive Surgical a competitive edge in the broader prostate surgery market in the third quarter.

Geographically, procedure growth in the third quarter is expected to be led by China, Germany and Japan. In Germany, procedure growth is likely to be supported by solid installed base expansion.

Furthermore, procedure trends are expected to be solid globally, with growth led by general surgery and global urology segments.

Systems & Service Unit Hold Promise: Solid growth in the company’s product and systems segment is expected to drive the company’s third-quarter earnings. In fact, the Zacks Consensus Estimate for revenues at this segment stands at $216 million, up 5.4% on a year-over-year basis. The increase reflects higher system placements and operating lease revenues.  However, this might be partially offset by lower average selling prices and lease buyout revenues at the segment.

Coming to revenues at the services segment, the Zacks Consensus Estimate stands at $145 million, up 11.5% on a year-over-year basis.

Growth in System’s Installed Base: Buoyed by higher system placements and operating lease revenues, we expect the company’s total systems installed base to be 4231 units, up 82 units from the last quarter. It is important to note that Intuitive Surgical generated approximately $6 million in revenues from operating leases last quarter, compared with 4 million in the second quarter of 2016.

Here is what our quantitative model predicts:

Intuitive Surgical does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Intuitive Surgical is -0.49%, as the Most Accurate estimate is $1.96 and the Zacks Consensus Estimates is pegged at $1.97. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Intuitive Surgical carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat. In fact, the Zacks Consensus Estimate for earnings reflects a decline of 4.2% on a year-over-year basis.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Abbott ABT has an Earnings ESP of +0.17% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology, Inc. ALGN has an Earnings ESP of +2.06% and a Zacks Rank #3.

Henry Schein, Inc. HSIC has an Earnings ESP of +0.33% and a Zacks Rank #3.

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