Will Intuitive Surgical (ISRG) Beat Q3 Earnings Estimates? - Analyst Blog

Intuitive Surgical, Inc. (ISRG) is slated to report third-quarter 2014 results after the closing bell on Oct 21. In the last reported quarter, Intuitive Surgical recorded a positive earnings surprise of 9.8% despite lower year-over-year earnings. Let's see how things are shaping up for this announcement.

Factors to Consider

Intuitive Surgical, which specializes in robotic-assisted surgeries, has been struggling with lower revenues owing to a stiff hospital capital spending environment. With the recent fiscal tightening and tapering of reimbursements, hospitals are actively realigning their capital priorities, posing a threat to the adoption of the company's procedures.

Weakness in the company's revenue stream seems to be hurting the bottom line as well. Meanwhile, margins remain under pressure due to rising operating expenses, which are expected to continue to escalate in the second half of the year owing to product launches and international expansion.

Despite several internal challenges coupled with macroeconomic headwinds, Intuitive Surgical is extremely optimistic with regard to its recently launched da Vinci Xi Surgical System. The company continues to develop innovative technologies for its Surgical Systems and has recently won regulatory clearances for a few of them.

Intuitive Surgical also expects higher procedure growth of between 5% and 8% for full-year 2014 over around 523,000 procedures performed in 2013, as against the prior growth expectation of 2% to 8%.

Earnings Whispers

Our proven model does not conclusively show that Intuitive Surgical is likely to beat earnings this quarter as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%, as both these estimates stand at $2.67.  

Zacks Rank: Intuitive Surgical's Zacks Rank #3 (Hold) when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat:

Abaxis, Inc. (ABAX) with an earnings ESP of 4.55% and a Zacks Rank #2 (Buy).

Heartware International Inc. (HTWR) with an earnings ESP of 21.21% and a Zacks Rank #3 (Hold).

Hologic Inc. (HOLX) with an earnings ESP of 5.41% and a Zacks Rank #3 (Hold).