This High-Tech Company Still Has the Touch


Unlike perennial overachiever Apple (NAS: AAPL) , yesterday's earnings release for Intuitive Surgical (NAS: ISRG) was in line with real expectations: beat analyst outlooks. The surgical device maker has only failed to beat analysts' outlooks twice in the last six years, and one of those was it meeting expectations.

This quarter, it wasn't even close. Analysts were expecting earnings of around $2.76 per share; Intuitive Surgical posted a strong $3.05. Revenue was also higher than expected: $447 million versus analysts' $418 million.

Analysts shouldn't feel bad, though; the results also exceeded management's expectations -- at least what they were sharing publicly. The company raised revenue guidance for the year to 22% to 23% from a previous forecast of 19% to 21%.

Part of the higher-than-expected revenue can be attributed to procedure growth that was more robust than the company estimated. It bumped 2011 procedure-growth guidance from a previous range of 27% to 29% up to 29% to 30%.

Procedures are important for Intuitive Surgical because the company's disposable instruments are used during each surgical procedure. Sales of instruments and accessories jumped 38% year over year.

That's not to say the $1.5 million da Vinci surgical systems aren't important because they are. The more systems installed, the more consumables that will be ... well ... consumed. With the 133 system sales last quarter, the company now has more than 2,000 da Vinci systems installed. It wasn't that long ago that the company surpassed the 1,000 systems mark.

The reason Intuitive Surgical can continue to expand at this stellar rate is because it's found a niche that isn't saturated like the ones that Medtronic (NYS: MDT) , Boston Scientific (NYS: BSX) , and St. Jude Medical (NYS: STJ) work in. Johnson & Johnson (NYS: JNJ) even decided to get out of the drug-eluting stent market, presumably because it didn't see a good return on investment in R&D for the incremental improvements.

At some point, procedure growth will slow down as Intuitive Surgical saturates its markets and can't find new procedures to convert to the minimally invasive format. But at this point, that seems well off, and investors can expect years of analyst-beating quarters ahead.

At the time thisarticle was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson, Medtronic, Apple, and St. Jude Medical. Motley Fool newsletter services have recommended buying shares of Apple, Intuitive Surgical, and Johnson & Johnson; creating a diagonal call position in Johnson & Johnson; and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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