We upgrade our rating for Intuitive Surgical, Inc. (ISRG) to Outperform. First quarter earnings per share of $3.50 beat the Zacks Consensus Estimate. Gynecology and prostatectomy procedures did well in 2011, as did certain emerging procedures.
Recurring revenue continues to grow as a proportion of sales. In the interim, the installed base of Intuitive is expanding as more hospitals feel compelled to upgrade their technology. Overall, a proper valuation is appropriate given positive factors such as Intuitive's leading position in robotic surgery, a growing list of emerging procedures, barriers to entry, sizeable cash balance and no debt.
We like the company's da Vinci system, particularly its unique status as an enabler of robotic, minimally invasive surgery. Our target price of $701 is based on a P/E of 48.2x our fiscal 2012 EPS estimate.
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