Opinions
Jim Cramer - Mad Money
Intuitive Surgical Inc.
ISRG-Q
WAIT
Apr 21, 2025
Stock price when the opinion was issued
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Is up 55% over the year, though -4% today after earnings and 12% so far this year. They pre-announced strong topline numbers of 25% revenue growth as global Da Vinci procedures grew 18%--and they sell consumables for the Da Vinci system, so more revenues to come. They guided 13-16% DV growth this year--strong numbers. And yet they disappointed investors last night, because of the full-year forecast of 67-68% gross margin, down from last year's 69.1% and below estimates. Also, they signaled rising costs over last year, which the reaction is overblown and misguided. After all, demand for the system is durable and every US company is facing headwinds from the strong USD and potential impact from new Trump tariffs (Mexico makes some of their products). Also, their higher expenses are building the company, which is good.
We would look at P/E (61X, vs 3-year 72X), P/CF (72 vs 70X) and earnings growth (18% vs 30%). Overall growth rates have slowed as the company gets bigger, but free cash flow has surged anf the company has $4B net cash. The stock is down 6% YTD. We think $475 would look good.
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Primarily US-based. Main customers are hospitals, so there can be funding concerns. Long-term, very good secular growth in robotic surgery. Tends to trade at very high multiple. When rates are high, as they have been, hospitals pause on the more costly budget items.
In the healthcare sector, but not really a defensive the way pharma is.
EPS of $1.81 beat estimates of $1.72; revenue of $2.25B beat estimates of $2.18B. EBITDA of $771M missed estimates of $864M. It was a good quarter, with revenue up 19% and earnings up 21%. The company did lower guidance a bit, but this was due to tariffs, which could be delayed, or reprieved, and should not be permanent (maybe) and should not be a big surprise. Intuitive Surgical's cut to gross-margin guidance due to tariffs may overshadow the 1Q beat and higher procedure-volume outlook. Management expects a 170-bp hit in 2025, split roughly between China and imports from other countries, particularly Mexico, with the impact expanding throughout the year. Guidance for procedure growth rose to 15-17% for the year from 13-16%, driven by strong utilization in Europe. US bariatric-procedure volume continues to face pressure from the use of GLP-1 weight-loss drugs, declining mid-single-digits in the quarter. Further pressure could come from the emergence of oral versions of the drugs. Intuitive placed 367 systems in 1Q, slightly below expectations, yet roughly in line with 4Q-1Q seasonality seen last year. Of those placed, 147 were da Vinci 5s. Very good growth overall is expected over the next two years, despite these issues. The company now has $9B cash and generating $2.4B cash annually. The long term thesis and moat here have not really changed, and any good news on tariffs would be positive for the stock, which has actually held up OK in this market considering its high valuation (up 26% in a year, down 8% YTD). The conference call did not add much in the way of detail, but other than tariffs the tone was positive. We would be OK buying this still, in the context of overall market volatility and with a 3+ year holding period.
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We would be comfortable buying today; We would look for perhaps $525, but it is not really a stock to try to catch a perfect price on. It is up 10,079% in 20 years. But markets look to decline at the open today.
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When he looks at a company, the first thing to look at is the group that they're in. You can have a great company in a group that's out of favour, and have a difficult time.
Will be a big beneficiary from the move in AI. Problem is that healthcare device companies in general are under pressure. Healthcare itself is under political pressure. Nice house in a tough neighbourhood.
ISRG presented today at a Wells Fargo investment conference. It discussed margins and international and tariff challenges. Margins this year will be 66% but move to 70% average over the next three to five years. It plans to mitigate tariffs through higher prices. This is slightly negative, but typically conference 'reactions' are overdone. But, down 16% YTD, we would be OK buying, but would do so slowly. There needs to be a sector catalyst to spark the stock, and today's news is not going to do it. But tariffs of course are not 'new' and the long term picture we doubt has really changed.
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The market didn't like their last quarter and this sold off, but is still trading at a high 58x PE. Wait until tomorrow after the close when they report.