Intuitive Surgical: Detached From Fundamentals

Core Insights - Intuitive Surgical's second quarter results showed strong performance with significant margin improvements despite expectations of profitability pressure from the da Vinci 5 launch [1] - The company is expected to experience growth that outpaces expectations in 2024, driven by strong surgery volumes and the introduction of new systems [1][6] - The valuation of Intuitive Surgical remains high, raising concerns about future returns despite current positive performance [1] Market Conditions - Procedure volumes increased by 16% year-over-year in Q1 2024 and nearly 17% in Q2, with strong growth in various surgical areas [2] - Growth is observed in markets outside the US, particularly in Germany, the UK, and Italy, while conditions in Asia, especially China, are mixed due to local production policies [2][3] - The surgical robot market in China is projected to reach approximately 6.5 billion USD by 2030, with current penetration in laparoscopic surgery being less than 1% [3] Business Updates - The da Vinci SP system was launched in Europe, with eight systems placed in Q1 2024, and FDA clearance for thoracic procedures was received [4] - The da Vinci 5 system, which offers enhanced features, had 70 placements in Q2, but supply constraints are expected to limit growth until mid-2025 [4] - The Ion system is also contributing to growth, with easing supply constraints and progress in commercialization in Europe and China [4] Financial Analysis - Intuitive Surgical's revenue increased by 14% year-over-year to 2 billion USD in Q2, with 341 da Vinci systems placed, including 70 da Vinci 5 systems [5] - The average selling price (ASP) of systems rose by approximately 3.6% year-over-year to 1.44 million USD, influenced by the da Vinci 5 and fewer trade-ins [5][8] - Gross margin was reported at 70% in Q2, up 1.5% year-over-year, but is expected to face pressure from rising depreciation expenses and a higher mix of da Vinci 5 sales [8] Future Guidance - Intuitive Surgical is guiding for procedure growth of 15.5-17% in 2024, with potential headwinds from bariatric procedures and challenges in Asia [6] - The company aims to return to 40% operating profit margins, although current cash flows have deteriorated due to significant capital investments [8][11] - Despite a strong business position, the stock's current valuation raises concerns about future performance, with historical patterns indicating potential drawdowns when revenue multiples reach similar extremes [11]