Can MAKO Surgically Strike Back?


Wall Street enthusiasm can be tepid at best for some companies the Motley Fool CAPS community has bestowed its top honors on. So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley community of investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?

Of course, as much as we love our CAPS community, don't buy a company just because its garnered top ratings. And don't sell it just because Wall Street says to, either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.

A confidence game
Cutting guidance twice in as many months is enough to shake the confidence of even the most seasoned investor, so it should come as no surprise that medical-device maker MAKO Surgical (NAS: MAKO) finds its stock sitting 70% below the highs it hit just four months ago. The question for investors, obviously, is whether MAKO has what it takes to turn around.

Wall Street is still feeling around to understand where it will come out, as over the past 30 days two analysts raised their current-quarter earnings estimates, but two also lowered theirs. With MAKO set to report earnings next week, they've forecasted a loss of $0.21 per share. That's better than the $0.24 it lost last year, but is of course worse than what they were predicting last quarter.

Sales taking a "staycation"
MAKO's problems began when its robotic RIO system began to lose traction. The device maker had expected system placements approaching 56 to 62 units for the year, but it was only able to secure a place for six of them in the first quarter. That led it to scale back its estimates to 52 to 58 system placements, still within the lower range of its original estimates and a target I figured it could hit.

Wrong. Earlier this month, MAKO reported second-quarter numbers showing just nine more systems sold, so it had to slash its full-year estimates once again and knocked them back to 42 to 48 placements, with procedures performed with the systems also getting a haircut.

As bad as all this is, it's tempting to think it might not completely be a problem of MAKO's making. Hansen Medical (NAS: HNSN) , after all, was only able to get two placements for its Sensei catheter systems in the first quarter and saw the number of procedures drop 5% year over year. And even though Intuitive Surgical (NAS: ISRG) is still able to sell more of its DaVinci systems, a lighter-than-anticipated growth in procedures knocked its stock back like all the rest (well, maybe not nearly as bad as MAKO's has been).

Across the pond
The recurring theme really seems to be Europe and the fiscal problems the continent just can't shake. Even Intuitive's sales were weak there, but MAKO was only able to get one of the nine units it shipped into foreign hands, and that was to a distributor in China for use in a Hong Kong hospital.

While I do have an outperform rating on MAKO on CAPS, I think there may be some growing credibility issues surrounding management's pronouncements. The manufacturer of orthopedic surgical systems blamed timing problems for the poor first quarter, but the sales didn't bother showing up in the next quarter, and the cut to guidance suggests they won't be showing up at all. It may be that its robotic solution to hip and knee replacement may be just a tad too radical yet to swing most mainstream hospitals away from the traditional implants offered by the likes of Stryker (NYS: SYK) and Zimmer Holdings (NYS: ZMH) , but management has to curb its enthusiasm for being too expansive.

There is hope in growing utilization rates, suggesting MAKO will be able to build up a body of evidence to convince more hospitals to take a flier on its machines. Some might question whether that's a possibility, since private-equity firm Montreaux Equity Partners sold its entire stake in the company and its representative on the board resigned. Add in the fact that the VP of sales jumped ship, and you have a picture of a company that's awfully wobbly.

Fortunately, MAKO is free of debt, which gives it some wiggle room, but even management is now aware it has to get its act together and focus on near-term execution. CAPS member LouPerna is hopeful, since "Demographics is on MAKOs side," while lytri sees all those procedures MAKO is performing with its installed base showing "that doctors are finding value in the RIO devices and sales will pick up eventually."

So cut to the quick and tell me on the MAKO Surgical CAPS page or in the comments box below why you think this medical-device maker will succeed or fail.

What's wrong with that?
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Fool contributor Rich Duprey owns shares of Intuitive Surgical, but he holds no other position in any company mentioned. Check out hisholdings and a short bio . The Motley Fool owns shares of Zimmer Holdings, Intuitive Surgical, and MAKO Surgical. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical, MAKO Surgical, and Stryker. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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