Second negative report hits Intuitive Surgical, but shares rally on positive Goldman Sachs update

MassDevice.com Wall Street Beat

Shares of Intuitive Surgical (NSDQ:ISRG) came under pressure early yesterday on a negative report from hedge fund Citron Research, before rallying after Goldman Sachs boosted its price target on the stock.

"As Wall St. awaits ISRG earnings next week, which are at risk of tipping weakness in its total procedures growth, the real story is the macro picture, which portends enormous headwinds in 2013 for the 1-time Wall Street darling. Procedure counts will dramatically soften and new machines sales will flatline, due to:
heightened awareness of treatment cost differentials to be leveled under Obamacare; the consequences of looming litigation, which will force hospitals to disclose more completely and accurately the risks of complications in robotic surgeries, including: the specific risks of being exposed to the movements of the robot’s instruments; the electricity conducted within and through them; and the surgeon’s level of skill and training in manipulating the device," according to the Citron report.

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That sent ISRG shares down 2.5% yesterday to a low of $485.80 (a December Citron report sent shares down 10%).

But a positive update from Goldman Sachs, based on an unrevealed new product from Intuitive, sent shares to a peak of $517.46 before closing at $514.20, up 3.1% for the day.

"While not yet announced, a new system iteration (the most recent was da Vinci Si in 2009) as well as uptake of expanded device add-ons (i.e. EndoWrist vessel sealer, stapler system, dual consoles) could be a driver of new growth," according to Goldman Sachs. "We see ISRG’s relative safety profile as an attractive alternative when compared to other surgical options. Additionally the company’s strong cash and investment holdings ($3.3 billion as of 3Q12) and significant free cash flow generation (we estimate $800+ million for 2013E) should be more than sufficient to settle any legal proceedings with plenty of room to spare."

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 Analysts’ ups and downs

  • Abbott (NYSE:ABT): UBS maintains "buy" rating, lowers price target to $38.
  • Intuitive Surgical (NSDQ:ISRG): Goldman Sachs maintains "neutral" rating, raises price target from $561 to $587.
  • Mako Surgical (NSDQ:MAKO): Leerink Swann maintains “market perform” rating, lowers price target to $12-13 from $15.
  • Medtronic (NYSE:MDT): Credit Suisse upgrades from "neutral" to "outperform", sets $50 price target.
  • Stryker (NYSE:SYK): Leerink Swann maintains "outperform" rating, ~$61 price target.

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