Intuitive Earnings: Bariatric Pressures Dominate Discussion, but Underlying Performance Strong

Unsurprisingly, recent developments in weight loss drugs (GLP-1) and the resulting effect on weight-loss surgery dominated Intuitive Surgical’s ISRG third-quarter earnings call despite bariatric procedures representing less than 5% of the total. While it is reasonable to assume that our and the market’s prior expectations around bariatric penetration for robotics are too optimistic in light of the recent significant developments in weight loss therapies, this has little effect on our assumptions. We maintain our wide moat rating and $230 fair value estimate, but even with the stock pullback, shares remain in overvalued territory.

For us, the key developments in the quarter were slower system placements, particularly outside the United States, offset by still robust procedures dynamics and improving utilization. Utilization growth remains above historic norms and the elevated levels are more indicative of what the future base line will look like, considering greater penetration of less complex (and thus quicker) procedures. System placements remain on a decelerating path as the company is bumping into the greenfield ceiling and in the absence of the next-generation platform, we don’t expect the situation to change materially in 2024. However, that is not a problem for us as long as procedures growth remains healthy, which it is.

Bariatric procedures growth decelerated, but the adoption and market share of robotics are still growing. The company is of the opinion that the current trends will lead to a deferral rather than a downright reduction of surgeries, considering a potentially limited time horizon for taking weight loss medication. We are not as sanguine and are dialing down the growth in bariatric surgeries overall and robotic penetration. But the effect on our assumptions is minimal, particularly if the company maintains a torrid growth path in other areas, particularly Ion, a robotic-assisted platform for minimally invasive lung biopsies.