Canaccord Upgrades Intuitive Surgical To Buy, Sees $615 Target On 'Robotic Renaissance'

In a report published Wednesday, Canaccord Genuity analyst Jason Mills upgraded the rating on Intuitive Surgical, Inc. ISRG from Hold to Buy, while raising the price from $517 to $615. The analyst expressed confidence in the company's fundamentals, as well as its ability to sustain double-digit procedure growth over the next 12-18 months.

According to the Canaccord Genuity report, "Procedure growth has accelerated in three of the last four quarters (and 4Q was still +10%), which we think portends ISRG has turned a corner in this all-important recurring revenue segment."

More importantly, gross margins trended up in Q2, with the management specifying that efficiency initiatives and cost reduction was expected to drive results in the forthcoming quarters.

"Moreover, we expect significant investments ISRG made overseas and in the product pipeline can contribute to procedure and system growth beyond 2015, augmenting our forward-estimate confidence," Mills said.

In the longer term, the analyst expects robotics surgery to capture share of the growing MIS procedure market, benefiting from a mix shift to MIS from open surgery, especially in the general surgery segment, which drove procedure growth for Intuitive Surgical over the past decade.

"[A] positive Japanese reimbursement decision and new SP robotic system approval are coming down the pipeline, and either/both could augment capital placement trends, and thus procedure growth in out years, in our view," Mills added.