Intuitive Surgical (ISRG) held its third quarter analyst conference yesterday, October 20, 2009. While Intuitive is actually doing well, especially when you consider the depressed economy, it is not doing as well as investors had hoped. Any stock with a high Price to Earnings (P/E) ration such as Intuitive has is vulnerable to these sorts of let downs.
Revenues were $280.1 million, up 8% sequentially from $260 million, and up 19% from $236 million in the year-earlier quarter. Net income was $64.5 million, up 3% sequentially from $62.4 million, and up 12% from $57.6 million year-earlier. For more details on third quarter results see my Intuitive Surgical Analyst Conference Summary for October 20, 2009.
Those numbers would make ISRG a growth company; for a recession they are stellar. Yet I don't own any Intuitive Surgical stock, and hesitate to buy it at today's price. It is true that if the economy recovers and doctors continue to adopt robotic surgery techniques at a rapid pace, today's stock price can be easily justified by future expectations. But the late debacle should warn us to be careful about assigning high P/Es to stocks.
If you want to criticize Intuitive, you would point to the number of its da Vinci Surgical systems sold in the quarter. At 86, that is down from the 91 sold in Q3 2008. The new generation of systems are pricier, and a good bit of revenue, more than half now, comes from servicing the installed base and supplying instruments and accessories for surgeries performed. So 86 is not a disaster. But recall that Q3 2008 was a time when wiser heads were already starting to be careful with their capital spending. It was not a boom quarter.
Among doctors there is still a great deal of excitment about Intuitive Surgical, the da Vinci systems, and robotic surgery in general. On the other hand, I expect competition in this field to ramp up in the next few years.
Intuitive Surgical may be a bit overpriced, but it is a good stock to buy on dips. However, always be wary of stock prices that are based on investor enthusiasm rather than profits and reasonable expectations of future profits. Even after today's stock drop Nasdaq (which uses non-GAAP measures) is reporting Intuitive's P/E ratio at 48 trailing, 40 forward. That is flying pretty high in this stock market.