The 5-year contract covers the da Vinci device plus instruments, accessories and upgrades, according to the Pentagon. Intuitive won out over 34 other bidders, according to the Defense Dept.
Leerink Partners analyst Richard Newitter said that, although the contract isn’t a guarantee of $430 million in business for Sunnyvale, Calif.-based Intuitive, it does make the purchasing process much simpler for participating military branches and government bureaus (the deal covers the Army, Navy, Air Force, Marine Corps and federal civilian agencies).
"We checked in with management, who noted that although this doesn’t represent a commitment from the government, it greatly simplifies the purchase process should DoD hospitals – where ISRG currently has a limited presence – go forward on buying a [da Vinci] system," Newitter wrote today in a note to investors, positing that the deal could mean a 3% to 4% upside to 2015 sales.
“The authorization does not state when (or necessarily guarantee) the full $430M amount will be allocated. However, if we were to assume: (a) the government does fully use the authorized amount, (b) spreads purchases evenly over a 5-year period, and (c) this revenue does in fact end up being incremental to our current forecasts, this would represent ~ $86M/year sales upside to our 2015-2017 sales estimates. At a ~33% cash EBIT margin (below the corporate avg. to assume some level of discount on these sales), this would imply up to ~$0.50/year of potential incremental [earnings per share]," Newitter wrote.
ISRG shares were trading at $509.07 apiece in late-day activity today, up 1.2%.