Intuitive Surgical sinks as earnings beat seen as 'not enough' for high-flier
The shares of Intuitive Surgical (ISRG) are falling after the company reported significantly better than expected quarterly results. In a note to investors today, research firm Piper Jaffray blamed the negative reaction to high expectations, a run-up in the shares year-to-date and the stock's "premium valuation." Intuitive Surgical develops and markets devices that assist doctors with surgeries and enable minimally invasive procedures. RESULTS: Intuitive Surgical reported third quarter earnings per share of $6.19, versus the consensus outlook of $5.13. The company's revenue came in at $683M, versus the consensus outlook of $650.5M. The number of procedures performed using Intuitive Surgical's products rose 14% last quarter, versus the same period a year earlier. Intuitive Surgical estimated that the number of procedures performed using its products would increase nearly 15% in fiscal 2016. However, it did note that that the growth of mature procedures performed using its products had slowed last quarter. ANALYST REACTION: Before the market opened today, Piper Jaffray analyst Matt O'Brien predicted that Intuitive Surgical's stock would fall "a bit" today. The stock had advanced significantly this year, and it was trading at almost 30 times O' Brien's 2017 earnings per share estimate, the analyst wrote. Moreover, the 14% increase in procedures performed using the company's products was only in-line with expectations, and the company plans to significantly increase its spending on employees and R&D going forward, wrote O'Brien, who kept a $700 price target and a Neutral rating on the stock. Conversely, Vijay Kumar, an analyst at research firm Evercore, recommended buying Intuitive Surgical stock on any weakness. The results showed that demand for the company's new Xi products is strong, while the increase in consumable revenue per procedure was a "very positive sign," wrote Kumar. Moreover, the company's "underlying margin trends," excluding one-time items, "were strong," according to Kumar. The analyst expects the company's revenue to continue growing by double digit percentage levels going forward, and he thinks that its new products will enable it to continue to be a market leader. Kumar reiterated a Buy rating and $785 price target on the shares. Additionally, Leerink analyst Richard Newitter raised his price target for Intuitive Surgical to $810 from $790 following the company's Q3 revenue and EPS beat, which he said was marked by solid year over year procedure growth and gross margin outperformance. PRICE ACTION: In late morning trading, Intuitive Surgical fell 4.6% to $688.30.