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Intuitive Surgical (ISRG)

This medical device company beat analysts’ estimates by $0.65 last quarter, and in the last 30 days, 17 analysts have increased their forecasts for next year.

Intuitive Surgical (ISRG)
From Canaccord Genuity Research

Viva la Robolucion! We expect Intuitive Surgical (ISRG)to trade materially higher, as we are increasingly confident robotic-assisted surgery devices (RASD) are in the midst of a multi-year utilization uptrend in the general surgery realm, as more surgeons seek to expand their competencies and broaden their practice beyond conventional MIS techniques.

What’s more, the firm’s cash balance increased over $400M to $4.2B, and management seemed more inclined than ever to put this hoard to work (we think technology investments-acquisitions and dividends are more probable than ever, which could augment growth and attract new investors, respectively).

Near term, we expect to continue to see strong uptake of da Vinci robotic surgery in hernia, colectomy, rectal resection, and thoracic procedures. Together with new important, concomitant technologies (e.g. 30mm stapler, table motion software, vessel sealer) that increase the utility and performance of da Vinci even further (into higher ASP/margin procedures like colorectal and thoracic no less), we think ISRG can continue to produce double-digit procedure growth through 2017 at least.

On the new technology front, management gave new details on the single port (Sp) robotic platform and new imaging technologies to augment our bullishness about the long-term growth opportunities for ISRG. We reiterate our BUY rating and raise our target to $750 from $700.

• Strong fundamentals on display again in Q2: 1) procedure growth beat (16% vs. 14%E); 2) system revenue beat (+15% vs. -2%E); 3) GM beat (71.8% vs. 69.8%E). These returns, coupled with solid OpEx control, drove OM (43.7%) to levels not seen since 2013, and pro forma EPS to $5.62 – nearly a buck higher than our estimate and +32% Y/Y (against the second-most difficult comp of the year).

• Positive changes to 2016 guidance: 1) Procedure growth guidance increased to 14-15% from 12-14%, (second guidance increase in as many quarters), 2) GM increased to 70-71% from 69-70% (also second guidance raise this year); and 3) OpEx growth expectations maintained in the range of 12-15% Y/Y.

• Our numbers are going up in our model for 2016 and 2017. We now project 2016 sales of $2.66B, above our prior estimate of $2.61B, while our pro forma EPS estimate increases to $21.48 (previously $20.27). For 2017, we increase our sales estimate to $2.95B from $2.85B, while our adjusted EPS projection goes up to $24.33 from $22.97.

Jason Mills, Jeff Chu, and Cecilia Furlong, Canaccord Genuity Research,, 617-371- 3711, July 20, 2016