Analysts Weigh In On Intuitive Surgical (ISRG) Strong Q2 Results

After the close, robotic surgery maker Intuitive Surgical (Nasdaq: ISRG) reported strong second quarter results. Shares of ISRG are surging 20% today following the announcement. The company reports Q2 EPS of $1.62, well above the analyst estimate of $1.25. Revenue for the quarter was $260.6 million, also above the consensus of $230.04 million. Today, a number of analysts are weighing in on the stock. Here is what some of them have to say:

Brean Murray Intuitive bested all expectations. Solid system placements and a reversal in the procedure-related ASPs pushed revenues beyond all estimates. While the economic environment may linger for some time, we believe the worst is over. The long-term trajectory for procedure growth is a substantial positive that underscores the strength of the platform. Upgrade to Buy with a $235 target price.

Deutsche Bank ISRG posted a remarkably strong and clean quarter, which should allay concerns that robotic surgery has peaked. The new, more expensive Si system was well received in the quarter which led to higher ASPs, and procedures again posted healthy growth with revenue per procedure increasing sequentially... Given that the macroeconomic environment remains challenging, management again refrained from providing much guidance but did increase procedure growth to "45+%" vs "40+%" previously. We continue to view procedure growth as an important barometer of the health of robotic surgery and the key leading indicator of future da Vinci placements. Gross margin guidance was increased to 71% and opex also went up due to the hiring of additional R&D and field service personnel. Based on the strength in the quarter, healthy demand for systems and da Vinci procedures, we have increased our estimates. Maintain Buy rating and increased price target to $225

Leerink Swann ISRG shares should react positively to the company's excellent 2Q09 results, reported yesterday after the close. The stellar performance suggests that ISRG is bucking every "expected" external challenge, including a global recession and tightened hospital budgets. Investors might anticipate that ISRG might be more impacted by weak capital equipment spending levels as operating and investment incomes at hospitals contract. But an ongoing broad-based adoption of robotic procedures appears to be helping ISRG plow past these challenges. Also contributing is rapid acceptance of ISRG's just launched (in April) da Vinci Si system---seemingly poised to become the most significant component of ISRG's system mix going forward. Maintains Market Perform rating, value ISRG shares at ~$190-$200 (up from $120-$125 previously)

Needham & Co ISRG increased 2009 procedure growth guidance to 45% from 40%. The company expects service rev growth of 35%. Operating expenses are now expected to grow 18% to 20%; compared to 17%...We increase our 2009 revs and EPS to $955M and $5.07 from $878M and $4.49...We expect revenues of $1,173M and $1,380M in 2010 and 2011, compared to $1,156M and $1,361M previously. Reiterate Buy rating and raises price target to $210

Canaccord Adams We increase our estimates in ‘09 for sales/EPS to $972M/$5.35 from $874M/$4.69. For ’10 we see $1,149M/$6.51 from $983M/$5.46. Our thoughts: We trust our due diligence which continues to suggest hospital CapEx spending remains very sluggish; the question is how ISRG bucked this trend in Q2. While one quarter does not a trend make, procedure growth and increase in procedure guidance suggest an inflection point may be at hand in the business once again, namely in gynecology; we believe in part due to a two "pull-through" catalysts, which we discuss later in this report. In sum, while we see significant opportunities, particularly in hysterectomy, we also recognize significant risk – i.e. whether a seemingly steepening slope in hysterectomy is sustainable (company does not delineate growth between procedures but we believe hysterectomy drove procedure upside in the Q). We recommend investors maintain exposure to the shares; however, we would not commit new money at this time, given current valuation. Maintains Hold, raises price target to $160

Soleil Securities Sales strength was a function of better da Vinci placements: 76 placements vs. our 69 placements...Moreover, better instruments/accessories helped numbers... We're surprised by sales strength despite cap- ex environment. Maintains Hold, raises price target to $195 from $147.

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