Intuitive Surgical Downgraded At Morgan Stanley, Stock Worth Only $500

In a report published Monday, Morgan Stanley analyst David R. Lewi downgraded the rating on

from Equal Weight to Underweight, while reducing the price target from $560 to $500. The analyst said that limited margin expansion was likely to result in structurally lower earnings growth. Analyst David Lewi forecasted a 7 percent sales CAGR over the next ten years to drive the market to $4.7 billion by 2025. This is expected to be driven by a 10 percent procedure CAGR, partially offset by "increased system utilization and system ASP and average procedure revenue declines." In the report Morgan Stanley noted, "Intuitive's pipeline system, the Sp, could open up additional procedures and could drive the sales base $480 million higher in 2025, which is reflected in our valuation." Intuitive has the highest high OM/GM ratio in devices even with softer top-line growth pressuring operating margins through this year. "Investors largely view this as temporary and consensus models target operating margins above 38% by 2017," Lewi said. Intuitive's shares are trading at a premium, reflecting growth, but "its earnings may not materially outpace peers," Lewi wrote, while adding that "structural margin pressures" could result in earnings growth that is "more inline with sales," and significantly below that of

.