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Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?
Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let's see what these Wall Street heavyweights think about Intuitive Surgical, Inc. (ISRG).
Intuitive Surgical currently has an average brokerage recommendation (ABR) of 1.64, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 25 brokerage firms. An ABR of 1.64 approximates between Strong Buy and Buy.
Of the 25 recommendations that derive the current ABR, 16 are Strong Buy and two are Buy. Strong Buy and Buy respectively account for 64% and 8% of all recommendations.
Brokerage Recommendation Trends for ISRG
While the ABR calls for buying Intuitive Surgical, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.
Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.
This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.
Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.
Zacks Rank Should Not Be Confused With ABR
In spite of the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two completely different measures.
Broker recommendations are the sole basis for calculating the ABR, which is typically displayed in decimals (such as 1.28). The Zacks Rank, on the other hand, is a quantitative model designed to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.
It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employers' vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.
In contrast, the Zacks Rank is driven by earnings estimate revisions. And near-term stock price movements are strongly correlated with trends in earnings estimate revisions, according to empirical research.
In addition, the different Zacks Rank grades are applied proportionately to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool always maintains a balance among its five ranks.
There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.
Is ISRG a Good Investment?
Looking at the earnings estimate revisions for Intuitive Surgical, the Zacks Consensus Estimate for the current year has remained unchanged over the past month at $6.67.
Analysts' steady views regarding the company's earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.
The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Intuitive Surgical. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here
It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for Intuitive Surgical.
Zacks Investment Research
Intuitive Surgical, Inc. (ISRG) closed the most recent trading day at $483.32, moving -1.64% from the previous trading session. This change lagged the S&P 500's 0.03% gain on the day. Elsewhere, the Dow lost 0.04%, while the tech-heavy Nasdaq added 0.2%.
Prior to today's trading, shares of the company had gained 1.91% over the past month. This has lagged the Medical sector's gain of 2.67% and outpaced the S&P 500's gain of 1.54% in that time.
Market participants will be closely following the financial results of Intuitive Surgical, Inc. in its upcoming release. The company plans to announce its earnings on October 17, 2024. It is anticipated that the company will report an EPS of $1.65, marking a 13.01% rise compared to the same quarter of the previous year. In the meantime, our current consensus estimate forecasts the revenue to be $2.02 billion, indicating a 15.57% growth compared to the corresponding quarter of the prior year.
For the annual period, the Zacks Consensus Estimates anticipate earnings of $6.67 per share and a revenue of $8.1 billion, signifying shifts of +16.81% and +13.69%, respectively, from the last year.
Investors might also notice recent changes to analyst estimates for Intuitive Surgical, Inc. These recent revisions tend to reflect the evolving nature of short-term business trends. As a result, upbeat changes in estimates indicate analysts' favorable outlook on the company's business health and profitability.
Our research suggests that these changes in estimates have a direct relationship with upcoming stock price performance. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.
The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. Over the past month, there's been no change in the Zacks Consensus EPS estimate. Currently, Intuitive Surgical, Inc. is carrying a Zacks Rank of #2 (Buy).
In terms of valuation, Intuitive Surgical, Inc. is presently being traded at a Forward P/E ratio of 73.72. This represents a premium compared to its industry's average Forward P/E of 27.6.
Investors should also note that ISRG has a PEG ratio of 4.24 right now. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. ISRG's industry had an average PEG ratio of 2.23 as of yesterday's close.
The Medical - Instruments industry is part of the Medical sector. This industry currently has a Zacks Industry Rank of 63, which puts it in the top 25% of all 250+ industries.
The Zacks Industry Rank evaluates the power of our distinct industry groups by determining the average Zacks Rank of the individual stocks forming the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.
Zacks Investment Research
Phibro Animal Health Corporation’s PAHC sustained growth in the Animal Health business is backed by robust sales of vaccines and Medicated Feed Additives ("MFAs"). The company’s focus on advancing vaccine technologies, along with the new vaccine production unit, instills optimism. Strong sales growth outside the United States seems encouraging. Yet, adverse macroeconomic impacts are a concern for Phibro’s operations.
In the past year, this Zacks Rank #2 (Buy) stock has rallied 71.5% compared with the industry’s 19.5% growth and the S&P 500 composite's 25.7% increase.
The renowned animal health and mineral nutrition company has a market capitalization of $872 million. PAHC has an earnings yield of 21% compared with the industry’s 14.1%. In the last reported quarter, Phibro delivered an earnings surprise of 20.59%.
Let’s delve deeper.
Key Upsides of Phibro
Animal Health Business Growth Continues: With the rise in scarcity of natural resources, demand for efficient production of animal food such as poultry, swine and cattle has increased. Phibro’s key animal health products, including MFAs and nutritional specialty products, help enhance animal nutrition. The company also manufactures vaccines, which protect animals from both viral and bacterial diseases.
During the fiscal fourth quarter, Phibro entered into a Purchase and Sale Agreement with Zoetis to acquire Zoetis’ MFA product portfolio, certain water-soluble products and related assets.
The Animal Health business witnessed 8% sales growth year over year in the fiscal fourth quarter. The upside was driven by a robust 14% increase in vaccine net sales, due to poultry product introduction in Latin America and a rise in domestic demand. Phibro reported MFAs and Other net sales growth of 12% due to strong demand in both domestic and international regions.
Potential in Emerging Markets: Phibro’s existing operations and established sales, marketing and distribution network in more than 80 countries provide it with ample scope to take advantage of global growth opportunities. Outside the United States, its global footprint extends to key high-growth regions, including Brazil and other countries in South America, Southeast Asia, Eastern Europe and Africa.
At the end of fiscal 2024, the company’s operations in countries outside the United States contributed approximately 42.5% to its total revenues.
Prospering Vaccine Business: Phibro is focusing on new developments along with incremental registrations and growing volumes of existing vaccine technologies. The company also makes significant investments to expand vaccine manufacturing capacity at several locations.
The vaccine business witnessed a robust 21% improvement in fiscal 2024, driven by a strong uptake across various regions, especially in Latin America. It also benefited from growing domestic demand. The company launched new commercial vaccines and looks forward to bringing additional vaccines to the Americas.
Key Downside of Phibro
Macroeconomic Concerns: In the current scenario, Phibro’s business could be severely impacted by economic sanctions, bans and broader military conflicts resulting from the ongoing armed conflict between Russia and Ukraine. Due to such unfavorable general economic conditions, its profitability could decline and negatively affect its overall financial performance.
In the fiscal fourth quarter, Phibro’s operating profit declined 21% while the operating margin contracted.
Estimate Trend of Phibro
The Zacks Consensus Estimate for Phibro’s fiscal 2025 earnings per share (EPS) has moved 0.7% north to $1.44 in the past 30 days.
The consensus estimate for fiscal 2025 revenues is pegged at $1.19 billion. This indicates a 17.1% rise from the year-ago number.
Other Key Picks
Other top-ranked stocks in the broader medical space are TransMedix Group TMDX, Intuitive Surgical ISRG and Boston Scientific BSX.
TransMedix Group’s earnings are expected to surge 255.8% in 2024. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 287.5%. Shares of the company have risen 156.5% in the past year compared with the industry’s 17.5% growth.
TMDX sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical, sporting a Zacks Rank of 1 at present, has an estimated long-term earnings growth rate of 17.4% compared with the industry’s 13.7%. Shares of the company have risen 64.8% compared with the industry’s 17.6% growth over the past year.
ISRG’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.97%.
Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 17.1% for 2024 compared with the industry’s 15.7%. In the past year, shares of BSX have risen 57.6% compared with the industry’s 19.5% growth.
BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.
Zacks Investment Research
Labcorp Holdings Inc. LH recently announced the completion of its acquisition of select assets of BioReference Health — a wholly-owned subsidiary of OPKO Health, Inc. (OPK). The transaction is aimed at providing customers with greater access to Labcorp's comprehensive, high-quality laboratory services, scientific expertise and expanded testing capabilities in key regions across the United States.
Likely Trend of LH Stock Following the News
Following the announcement, shares of Labcorp rose 2.1% to $225.76 yesterday. The company continues to gain a high level of synergies from its various new collaborations and acquisitions within the clinical laboratory service space. Accordingly, we expect market sentiment toward LH stock to continue to remain positive, driven by this announcement.
Details on LabCorp's Acquisition of BioReference Health
The terms of acquisition include BioReference Health's laboratory testing businesses. The laboratory testing business is focused on clinical diagnostics and reproductive and women's health in the United States outside of New York and New Jersey. The acquisition also includes BioReference Health’s certain patient service centers, customer contracts and operating assets, which currently generate approximately $100 million in annual revenues.
The acquisition will further enhance Labcorp's laboratory services network and expand access to its clinical services. The purchase price for the transaction is $237.5 million.
More on the News
The sale of these diagnostic assets is an important step toward improving efficiencies, enhancing the productivity of BioReference Health's operations and accelerating the process profitability. With the closure of the transaction, Labcorp is focused on integrating these assets to drive better health outcomes for patients.
Lazard was Labcorp's financial advisor while Hogan Lovells, Kilpatrick Townsend and Parker Poe were legal counsel. Piper Sandler & Co. was OPKO's financial advisor while Greenberg Traurig served as legal counsel.
Lapcorp’s Other Recent Developments
Earlier this month, Labcorp inked a strategic collaboration with Ballad Health to provide outreach laboratory services across the Appalachian Highlands region. Under the agreement, the company will acquire select operating assets of Ballad Health’s outreach lab services. These assets, in combination with the ongoing partnership, aim to enhance patient care, expand access to advanced testing and improve efficiency for the health system and its patients.
In August 2024, Labcorp purchased the select assets of the medical genetics company, Invitae. The acquisition will expand its specialty testing capabilities and ability to utilize genetic data to improve clinical trials and treatment regimens in oncology and select rare diseases.
Industry Prospects Favor Labcorp
Per a Fortune Business Insights report, the global clinical laboratory services market was valued at $258.71 billion in 2023 and is projected to grow from $274.21 billion in 2024 to $468.15 billion by 2032, witnessing a compound annual growth rate of 6.9% during the period.
The key factors influencing market growth include the increasing chronic diseases, the growing demand for early diagnostic tests and the rapid advancements in data management and sample preparation.
LH Stock’s Price Performance
Year to date, shares of LH have risen 12.2% compared with the industry’s 0.5% growth.
LH’s Zacks Rank and Key Picks
LH currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are Intuitive Surgical ISRG, TransMedics Group TMDX and Boston Scientific BSX. While Intuitive Surgical and TransMedics currently sport a Zacks Rank #1 (Strong Buy) each, Boston Scientific carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical’s shares have surged 64.8% in the past year. Estimates for the company’s earnings have remained constant at $1.67 per share for 2024 in the past 30 days.
ISRG’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%. In the last reported quarter, it posted an earnings surprise of 16.34%.
Estimates for TransMedics’ 2024 earnings per share (EPS) have moved up 2.5% to $1.23 in the past 30 days. Shares of the company have soared 156.5% in the past year compared with the industry’s 17.5% growth.
TMDX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.
Estimates for Boston Scientific’s 2024 EPS have increased 3.4% to $2.40 in the past 60 days. In the past year, shares of BSX have risen 57.6% compared with the industry’s 19.5% growth.
In the last reported quarter, BSX delivered an earnings surprise of 6.90%. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.18%.
Zacks Investment Research
QIAGEN’s QGEN business is expected to get a boost from its growing molecular diagnostic market, expanded test menu and growth-driving strategic collaborations. Yet, a challenging macro environment and an intensely competitive market may dent its results of operations. The stock carries a Zacks Rank #3 (Hold) currently.
Factors Driving Growth for QGEN Stock
QIAGEN offers one of the broadest portfolios of molecular technologies for healthcare. Its range of assays for diseases and biomarkers speeds up and simplifies laboratory workflow and standardizes many lab procedures.
The company has established itself as a preferred partner to co-develop companion diagnostics paired with targeted drugs, together with a rich pipeline of molecular tests transforming the treatment of cancer and other diseases. QGEN has more than 30 master collaboration agreements with pharmaceutical industry customers, some with multiple co-development projects. The company noted the expansion of QIAstat into new applications with pharma partners for companion diagnostics. During the second quarter, QIAGEN entered into a new partnership with the U.S. Federal Bureau of Investigation (FBI) to develop a first-of-its-kind digital PCR, which boosts forensics analytics.
In the second quarter of 2024, the 8% CER growth in the Diagnostic Solutions product group underscored the strength and resilience of the company’s portfolio mix. The growth was led by high-single-digit CER gains in consumables sales. The QIAstat- Dx testing system achieved double-digit sales growth, driven by significant gains in consumables and an ongoing good level of instrument placement.
To support internal growth, QIAGEN heavily invests in research and development for the menu expansion of its key platforms.
QIAGEN N.V. Price
QIAGEN N.V. price | QIAGEN N.V. Quote
The second quarter of 2024 saw numerous developments, such as the launch of the Investigator Quantiplex Pro FLX kit, which offers forensic laboratories a high level of sensitivity when processing forensics samples. Within the digital PCR platform QIAcuity, the company launched 35 new wet-lab tested digital PCR Microbial DNA Detection Assays and a new digital PCR Custom Assay Design Tool for copy number variation analysis.
In terms of strategic collaborations, in the second quarter, the company collaborated with Myriad Genetics to develop a globally distributable kit-based test for analyzing the Homologous Recombination Deficiency status. In January, the company, in collaboration with Penn State University, helped shape research, education and outreach in microbiomes.
The stock has gained 11.4% in a year compared with the industry’s 0.7% rise. With the company strategically expanding through innovation and synergistic deals, as well as expanding its business footprint, we expect the stock to continue its upward movement in the coming days.
Factors Weighing on QIAGEN Stock
QIAGEN currently markets products in more than 100 countries. Its international operations are subject to a variety of risks arising from the economy, political outlook, language and cultural barriers in the countries it operates. In many of these emerging markets, QIAGEN faces several risks, which include economies that may be dependent on only a few products and are therefore subject to significant fluctuations, weak legal systems that may affect its ability to enforce contractual rights, exchange controls, unstable governments and privatization or other government actions affecting the flow of goods and currency.
In the quarter under review, the company’s sales in the Asia-Pacific Japan region declined at a low-single-digit CER rate. Sales in China declined at a single-digit CER rate, reflecting the macro challenges in this market that are likely to stay for a while. The industry-wide trend of logistical challenges, arising from growing geopolitical complexities in recent days as well as supply shortages of healthcare labor globally, might result in a deteriorated margin scenario for QIAGEN going forward.
Considering QIAGEN’s huge gamut of services, the company is also susceptible to competitive headwinds. The company is facing increasing competition from firms that provide competitive pre-analytical solutions and other products used by QIAGEN’s customers. The markets for some of the company’s products are very competitive and price-sensitive.
Other product suppliers may have significant advantages in terms of financial, operational, sales and marketing resources and experience in research and development. According to the company, customers in the market for pre-analytical sample technologies and assay technologies display significant loyalty to their initial supplier of a particular product. As a result, it may be not easy to convert customers who have purchased products from competitors.
Key Picks
Some better-ranked stocks in the broader medical space are Intuitive Surgical ISRG, TransMedics Group TMDX and Boston Scientific BSX. While Intuitive Surgical and TransMedics currently sport a Zacks Rank #1 (Strong Buy) each, Boston Scientific carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical’s shares have surged 64.8% in the past year. Estimates for the company’s earnings have remained constant at $1.67 per share for 2024 in the past 30 days.
ISRG’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%. In the last reported quarter, it posted an earnings surprise of 16.34%.
Estimates for TransMedics’ 2024 EPS have moved up 2.5% to $1.23 in the past 30 days. Shares of the company have soared 156.5% in the past year compared with the industry’s 17.5% growth.
TMDX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.
Estimates for Boston Scientific’s 2024 EPS have increased 3.4% to $2.40 in the past 60 days. In the past year, shares of BSX have risen 57.6% compared with the industry’s 19.5% growth.
In the last reported quarter, BSX delivered an earnings surprise of 6.90%. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.18%.
Zacks Investment Research
Quest Diagnostics DGX recently purchased Allina Health’s select laboratory assets, in line with its strategy to expand through planned acquisitions. The acquisition should help Quest Diagnostics expand its unique and cost-efficient laboratory services in Minneapolis and across Minnesota and western Wisconsin.
Financial terms of the deal were not disclosed.
Likely Trend of DGX Stock Following the News
Following the announcement, shares of the company moved nearly 1.3% north to $156.36 at yesterday’s close. Historically, the company has gained high level of synergies from its various inorganic investments within the laboratory service space. We expect market sentiment on the stock to continue to remain positive around this announcement, too.
Meanwhile, DGX currently has a market capitalization of $17.41 billion. It has an earnings yield of 5.76%, much higher than the industry’s yield of 3.39%. In the last reported quarter, DGX delivered an earnings surprise of 1.73%.
More on Quest Diagnostics' Allina Health Deal
Under the terms of the agreement announced earlier, with the completion of the acquisition, Allina Health’s clinic physicians will now have access to Quest Diagnostics’ laboratory services.
For investors’ note, Allina Health is a leading non-profit healthcare system. With this transaction, Allina Health can reinvest non-profit resources to support its commitment to providing quality and affordable laboratory services to different communities of people.
Strategic Implications of DGX's Latest Purchase
The acquisition of Allina Health’s select laboratory assets is expected to be strategically aligned with DGX's business as both share common interests like helping a range of communities benefit from quality, innovative and affordable laboratory services.
According to Quest Diagnostics, this latest initiative is part of the company’s strategy to generate growth through accretive laboratory acquisitions.
Industry Prospects in Favor of Quest Diagnostics
Per a Grand View Research report, the global clinical laboratory services market was valued at $233.2 billion in 2023 and is anticipated to witness a CAGR of 3.5% by 2030. Primary factors influencing the market surge include the increasing burden of chronic diseases and the growing demand for early diagnostic tests. Along with these, rapid advancements in data management and sample preparation due to growing volumes of testing samples are expected to uplift market growth during the period.
Given the market potential, the deal is expected to benefit Quest Diagnostics' strategy for continuous growth through gradual laboratory acquisitions.
Quest Diagnostics' Growth Through Acquisitions
Acquisitions play a major role for the company. In addition to reaching out through professional lab services and reference testing, The company mainly focuses on traditional hospital outreach purchases and tuck-in lab deals that are accretive to earnings in the first year.
In August, the company announced the completion of its acquisition of LifeLabs from OMERS. The transaction was valued at approximately $1 billion, including net debt. This acquisition is aimed at enhancing access to diagnostic innovation for patients in North America.
The same month, Quest Diagnostics signed a definitive agreement to acquire select assets of University Hospitals' outreach laboratory services business. The transaction should help the company to broaden its access in Ohio to provide its innovative test menu, network of convenient patient access sites and broad health plan coverage.
Additionally, the company purchased PathAI Diagnostics from PathAI, aiming to increase the adoption of AI and digital pathology for better diagnosis of cancer and other diseases.
DGX Price Comparison
Over the past three months, DGX stock has risen 13.9% compared with the industry’s 9.7% growth.
Zacks Rank of DGX and Key Picks
Quest Diagnostics currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are Intuitive Surgical ISRG, TransMedics Group TMDX and Boston Scientific BSX. While Intuitive Surgical and TransMedics currently sport a Zacks Rank #1 (Strong Buy) each, Boston Scientific carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical’s shares have surged 64.8% in the past year. Estimates for the company’s earnings have remained constant at $1.67 per share for 2024 in the past 30 days.
ISRG’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%. In the last reported quarter, it posted an earnings surprise of 16.34%.
Estimates for TransMedics’ 2024 EPS have moved up 2.5% to $1.23 in the past 30 days. Shares of the company have soared 156.5% in the past year compared with the industry’s 17.5% growth.
TMDX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.
Estimates for Boston Scientific’s 2024 EPS have increased 3.4% to $2.40 in the past 60 days. In the past year, shares of BSX have risen 57.6% compared with the industry’s 19.5% growth.
In the last reported quarter, BSX delivered an earnings surprise of 6.90%. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.18%.
Zacks Investment Research
Shares of Intuitive Surgical ISRG have risen 14.2% in the past three months, outperforming the Zacks Medical - Instruments industry’s growth of 3.8% and the broader Zacks Medical sector’s return of 5.4%. ISRG stock has risen 45.7% year to date, primarily due to strong demand for its robotic surgery procedures.
The uptrend is likely to continue for the rest of 2024 as improving da Vinci procedures should continue to attract investors going forward. The company’s newly launched da Vinci 5 is also showing strong uptake since its launch in March.
Moreover, ISRG expects da Vinci 5’s advanced imaging to drive market penetration and open new targeted segments. The significant growth in ISRG’s Ion procedures shows prospects for continued top-line improvement in the upcoming quarters.
The company’s continued focus on upgrading its systems has played a pivotal role in sustaining its growth. The systems’ minimally invasive nature has helped in the wide adoption of certain surgical procedures.
Meanwhile, ISRG’s shares are trading above the 50-day and the 200-day moving average, indicating a bullish trend.
ISRG Stock Trades Above 50-Day Average
Intuitive Surgical expects procedure volume to grow 14-17% in 2024, continuing to drive the top line higher. The demand for medical procedures began to rebound in 2023 following the COVID-19 disruption. This resulted in strong growth.
Although procedure volume continues to improve, the company’s growth expectation for its procedures for fiscal 2024 is slightly below the pre-pandemic growth rate of 18% for full-year 2019. The Zacks Consensus Estimate for 2024 revenues reflects a year-over-year improvement of 13.7%.
The strong growth in procedure volume is likely to continue in the upcoming quarters due to the rising demand for da Vinci 5 on the back of its advanced features and shorter console time. The new device has covered only 10% of its targeted market, giving it enough space for growth.
Meanwhile, robotic procedures are leading to clinical and cost benefits for its users, driving strong adoption. ISRG’s broad product portfolio and flexible financing options are helping the company to ward off strong competition in the industry. The recovering catheter supply for ISRG’s another robotic system, Ion modulation system, bodes well.
However, the procedure growth rate may get hurt during the second half, reflecting the increased adverse impact of soft demand for bariatric procedures and increasing headwinds in Asia from prolonged physician strikes in Korea, delayed tenders and emerging domestic robotic systems in China. The company has maintained its guidance for full-year 2024.
ISRG expects gross margin in 2024 to be 68.5-69%, higher than 68% in 2023. The growth should be primarily driven by the strong uptake of da Vinci 5, improving supply challenges and realization of lower cost of materials. Moreover, the company lowered its operating expenses growth estimate to 10-13% from 11-15% (projected during the first-quarter earnings call).The improvement in costs and expenses is likely to drive earnings higher during the second half of 2024.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $6.67 per share, indicating a 16.8% year-over-year improvement. The estimate improved 6.5% over the past 60 days.
Expanding Portfolio Aids Long-term Prospects
ISRG’s expanding portfolio aids long-term prospects. In March, it received FDA approval for its da Vinci 5 fifth-generation multiport robotic system. The newest member of the da Vinci family is da Vinci 5, which also comprises the single-port da Vinci SP and the multiport da Vinci X and Xi systems. This was followed by FDA 510(k) clearance of a labeling revision for its da Vinci X and Xi specific to radical prostatectomy in June.
These clearances are likely to boost Intuitive Surgical’s business and generate additional revenues with new installations and wider procedure support. The installed base of the da Vinci system grew approximately 14% year over year during the second quarter of 2024.
Apart from da Vinci systems, Intuitive Surgical launched the Ion endoluminal system in 2019, extending its commercial offering beyond surgery into diagnostic endoluminal procedures. The system received approval in Europe and South Korea in 2023. It received approval in China during the first quarter of 2024.
Per the second-quarter 2024 earnings call, the installed base of Ion modulation system grew approximately 56% year over year to 678 units. The company completed approximately 23,200 Ion procedures in the second quarter, reflecting year-over-year growth of 82%.
Challenging Market Scenario Persists
Although ISRG has a strong product portfolio with significant opportunities, the company faces huge competition from large and well-established companies, such as Johnson & Johnson JNJ and Medtronic MDT, which are also focused on developing robotically controlled products. These companies have strong balance sheets and commercial networks to support the development and launch of new products. This can significantly affect ISRG’s prospects.
Meanwhile, any rise in supply-chain issues amid continuing geopolitical tensions may lead to choppy da Vinci 5 system placements in 2024. Any setback to recovering catheter supply may adversely impact Ion modulation system sales. Moreover, weakness in bariatric procedures, along with challenges in China from increasing provincial robotic competition and delayed tenders affecting capital placements, is likely to have a nearly three percentage point headwind for revenues in 2024.
Wrapping Up
Intuitive Surgical’s top and bottom-line performances are likely to remain strong in 2024 on the back of continued growth in the company’s da Vinci procedure volume, coupled with strong Ion procedure growth. ISRG is also increasing the pricing of procedures that should aid in 2024 sales growth. Improving procedure volume, along with better system placements and services across all markets, should drive top-line growth this year.
The launch of da Vinci SP in Europe and da Vinci 5 in the U.S. market should drive system placements higher. However, ongoing supply-chain constraints, although easing, are likely to hurt the availability of devices. Weakness in bariatric procedures and challenges in China are likely to offset growth in the upcoming quarters.
Although ISRG carries a favorable Zacks Rank at present, its style scores don’t look quite promising. The company has a Value score of F and Momentum and Growth scores of D and C, respectively. As such, we believe that investors should not rush into buying the stock now. While current shareholders should hold their position, new investors should wait for the stock to retract some of its recent gains, providing an attractive valuation for entry.
ISRG YTD Performance
Intuitive Surgical currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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