Intuitive Surgical's Sp Ushers In The Next Phase Of Growth Story

Morgan Stanley analysts David Lewis and Jonathan Demchick raised their price target on Intuitive Surgical, Inc. ISRG from $840 to $950. The analysts maintain an Overweight rating.

Lewis and Demchick highlighted Intuitive posted five straight quarters of company-adjusted procedure acceleration. They believe “this momentum warrants multiple expansion.” While Intuitive success has not gone unnoticed as it has outperformed Morgan Stanley’s coverage by ~20 points, analysts still see further room for growth due to a new breakthrough that is not been fully valued.

The primary driver behind this rating is the da Vinci Sp system, which Lewis and Demchick believe is the next phase in the growth story. Specifically, they think this system could be worth at least an additional $75 per share as it could add about 170,000 procedures annually by 2025.

What's Sp? Why Is It So Valuable?

The Sp system is the latest release in the da Vinci product line and is a system that is designed to enable robotic surgery. The system has three primary benefits according to Morgan Stanley analysts:

• Allows for easier access for surgery through natural orifices.
• Improves patient aesthetics.
• Reduces invasiveness of surgery and postoperative pain.

Lewis and Demchick stated that these benefits should allow the Sp system to increase robotic penetration in “breast, colorectal, endometriosis, nephrectomy, and transoral surgical procedures versus current da Vinci systems.”

“Beyond this, we also believe the Sp's reduced invasiveness will help drive robotic conversion in a broader set of laparoscopic tissue excision procedures, which is a large addressable market.”

Morgan Stanley estimates the system to be commercialized by the middle of 2018, and see it being worth anywhere between $75 to $170 per share in the bull case. Lewis and Demchick noted that this breakthrough, “begins the most robust period of platform innovation in the company's history, and we see the da Vinci Single Port (Sp) and the da Vinci flexible catheter (FC) system creating materially more value than captured by consensus”

As Intuitive shares last traded around $885 at time of writing, the analyst's price target represented about 11 percent further upside.