Providing disappointing numbers before the fact can be a good strategy as long as a company does a good job of setting the right expectations. Intuitive Surgical (ISRG) clearly didn’t.
Remember, earlier this month Intuitive Surgical warned investors that sales wouldn’t be very good. So why are shares falling today? The details of its earnings report were even worse than many imagined. Cantor Fitzgerald’s Jeremy Feffer explains:
As we suspected when Intuitive preannounced 7% 1Q procedure growth, the company’s previous 9-12% 2014 procedure growth guidance would have to come down, but the new 2-8% range is significantly lower than what we expected. Management again cited the usual suspects—hospitals moving away from benign hysterectomies, continued declines in U.S. prostatectomies, and choppiness in Japan due to lack of broader reimbursement. However, the company also mentioned near-term headwinds related to the FDA’s recent statement of caution regarding power morcellation in gynecological procedures; initially that statement was thought to benefit da Vinci, which does not employ morecellators. But with hospitals approaching these benign procedures more conservatively, we expect further downward pressure on volumes this year and are now modeling 4% procedure growth for 2014.
Canaccord Genuity’s Jason Mills and Jeffrey Chu recommend investors stay far, far away from Intuitive Surgical:
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We would recommend investors remain on the sidelines as the variability in future quarterly results could be volatile, and we suspect consensus estimates may not fully account for the myriad challenges facing the company in the near term, portending further downside revisions to consensus expectations potentiality through the next few quarters until the business anniversaries these tepid results. Based on our future expectations, and guided by our DCF analysis, we would refrain from getting constructive in ISRG unless investors see a pullback in the mid-$300 range near term.
Shares of Intuitive Surgical have dropped 11% to $378 at 1:18 pm.
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