What happened
Shares of Intuitive Surgical (NASDAQ:ISRG) stock slumped in Friday trading, down 7.2% as of 1:15 p.m. ET, despite the robotic surgery specialist having edged out consensus targets for both sales and earnings in its report last night.
Heading into the fourth quarter of 2021, analysts had forecast that Intuitive Surgical would earn $1.28 per share on sales of $1.52 billion. In fact, the company earned $1.30 per share and its sales were $1.55 billion — but investors sold it off anyway.
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So what
That’s a strange reaction to a pretty positive report, I must say. In Q4, Intuitive Surgical grew its “installed base” of da Vinci Surgical Systems by 12% year over year — that’s 6,730 systems out there in the market right now, generating recurring revenue from consumables and maintenance services for Intuitive. Sales for the quarter grew even faster, up 17%.
On the other hand, when calculated according to generally accepted accounting principles (GAAP), earnings per share rose only 3% year over year to $1.04. (Turns out, the $1.30 profit was only a non-GAAP number).
Now what
Still, it appears investors are upset less by the weak GAAP number, and more by the guidance Intuitive Surgical management gave for what lies ahead. In its conference call following the earnings release, Intuitive Surgical warned that da Vinci procedure volume is likely to be “significantly adversely affected” by the pandemic in the first quarter of 2022. As hospitals deal with the deluge of COVID-19 patients, there’s likely to be less room on their schedules for elective procedures utilizing surgical robots.
Intuitive noted that this trend was already visible in Q4, and predicts it could continue to affect financial results throughout 2022. In the coming year, management says it expects to see fewer upgrades of its robots, experience higher operating costs, and spend nearly 50% more on capital investment to boot.
More than a half a dozen analysts on Wall Street have already lowered their price targets on Intuitive Surgical stock in response to the guidance, reports TheFly.com, citing a range of concerns from lower gross margin to the “surprise” of costs rising, and predicting “flattish EPS” for the year as a whole.
For investors who had been betting on Intuitive Surgical remaining a growth stock, that was probably a letdown — and the reason the stock is slumping today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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