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Following Intuitive Surgical's Solid Q2, Citi Asks What's Next

Following Intuitive Surgical's Solid Q2, Citi Asks What's Next

Despite solid results from Intuitive Surgical, Inc. (NASDAQ: ISRG), Citi is focusing on "two items that did not absolutely shine" over the most recent quarter.

The first of which is systems. Citi said the 130 systems sold grew 10 percent and met Street estimates, but, similar to most quarters in recent memory, no longer really push meaningful upside.

The Quarter, In Review

"As we play out the second half of the year, investors will undoubtedly begin to consider the very early prospects of downside risk to systems estimates as we enter 2017 and near an MDT competitive launch," analyst Amit Hazan wrote in a note.

"While that remains a 2018 event at the earliest, one must acknowledge that Medtronic PLC (NYSE: MDT) is not exactly Titan Medical. They have relationships with almost every one of ISRG's hospitals and may very well drive a chilling effect on some purchases," Hazan noted.

Related Link: Intuitive Surgical Shares Expected To Trade Significantly Higher, Says Canaccord

Separately, the analyst highlighted that U.S. prostate growth moderated during the second quarter, an event that had not happened in over a year's time.

"It has been and continues to be our belief that the benefit effect from sidelined patients can continue throughout next year, but there could be a slight risk to our procedure growth numbers if this new moderation continues. The risk/reward may slowly be shifting," Hazan elaborated.

Rating, Guidance And Estimates

That said, Hazan maintains his Buy rating and raised the price target to $779 from $723, as both gross and operating margins continue to noticeably improve and provide confidence that meaningful upside still remains even in light of the newly raised guidance.

The second-quarter EPS of Intuitive Surgical, which makes da Vinci Surgical Systems, came in at $5.62, a 13 percent, or $0.65, beat over consensus estimate of $4.97.

The company hiked its 2016 procedure growth guidance to 14–15 percent from 12–14 percent and it is the second guidance increase in as many quarters. The company also raised its gross margin forecast to 70–71 percent from 69–70 percent.

The analyst also raised his 2016 EPS estimate to $21.72 from $21.31 and 2017 EPS view to $24.56 from $24.05. The consensus estimate calls for earnings of $20.69 and $23.69 a share for 2016 and 2017, respectively.

"The story is certainly not without risk as we consider the next 18 months, but for the moment we see strong visibility for mid-teens procedure growth and earnings upside to continue," Hazan added.

At time of writing, shares of Intuitive Surgical were seen up 5.76 percent to $710.63.

Full ratings data available on Benzinga Pro.

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Latest Ratings for ISRG

Apr 2020Piper SandlerDowngradesOverweightNeutral
Apr 2020UBSMaintainsNeutral
Apr 2020Canaccord GenuityMaintainsBuy

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