Editor's note: This story has been corrected to reflect the earlier mis-identification of an individual. We regret this error.
I'm working on a host of names that aren't yet ready for prime time, so let's revisit several oldies but (still!) goodies.
Can Intuitive Surgical Regain Its Cutting Edge?
Intuitive Surgical's (ISRG) shares have lost roughly one-quarter of their value after tumbling on surprisingly bad financial results last July. Sales growth tumbled to 7.8%, from 23.4% the previous quarter and 25.7% a year earlier. Most of the blame went to the Da Vinci surgical robot which, for whatever reason, didn't sell anywhere near as well as expected.
Analyst after analyst, caught flat-footed, immediately lowered estimates and/or downgraded their ratings.
One notable exception was Suraj Kalia of Northland Securities, who upgraded Intuitive to Market Perform. But he gets a pass. He had, after all, been the lone bear on the stock, and the quarter was worse than even he had expected.
Given this market, where the heavily shorted and clobbered stocks often miraculously become next week's winners, Kalia wasn't taking any chances. "The stock is down almost $180 (35%) from the time we initiated," he wrote, "hence we believe it is prudent to move to the sidelines for the time being." He quickly added, "That does not mean our long-term concerns are alleviated by any stretch."
William Blair's Ben Andrew also veered from the pack. But, unlike Kalia, he reiterated his Outperform rating in a note that tried to highlight what went right.
Now the most bullish of all analysts, Andrew is more enthusiastic than ever. After he had time to do further research, including an analysis of robot sales and the utilization rate of the robot at hospitals -- and after a meeting with CEO Gary Guthart -- Andrew said in a report Monday that he now believes there may be upside to his own expectations.
As it turns out, his report was issued the same day that First Analysis analyst Greg Chodaczek downgraded Intuitive to Underweight, saying just the opposite. Chodaczek said that he believes "consensus estimates remain overly optimistic" and that he sees "more downside than upside risk to our own below-consensus estimates." Chodaczek adds that he expects "prolonged weakness in the stock as we expect the valuation gradually to reflect a reduced and less-certain growth outlook."
This is where this gets interesting: In the oddest way, Chodaczek's "less-certain growth outlook" would appear to be confirmed by something Andrew said in his report, when he wrote, "Dr. Guthart suggested that while several unknowns remain regarding how long the slowdown in system placements will last, he has high confidence that the company's current and pending technological capabilities would provide for substantial new procedure demand, which in turn would drive demand for current and subsequent-generation families of systems above investor expectations."
Several unknowns remain regarding how long the slowdown in placements will last?
That sticks out like a sore thumb, and it suggests that while Guthart is confident (as every CEO should be), his confidence is conditional and guarded -- hardly what investors in growth companies want to see or hear.
Intuitive is not going away, and neither is the use of the Da Vinci in surgeries. It's a useful tool in the right hands, in the right hospitals, in certain procedures. Since prostate and hysterectomy procedures are on the wane, the company is pushing into areas of general surgery, such as gallbladder removal, for which there is some skepticism in surgical circles about whether the robot leads to improved outcomes. (Gallbladder removals have routinely been done laparoscopically since the mid-1990s.)
But, as I reported at CNBC.com, there are also growing controversies surrounding the Da Vinci, including safety concerns and a history of overzealous marketing. And a recent study by Johns Hopkins went so far as to say robotic complications are under-reported. It's unclear why robot sales slowed so sharply, but it's not every day that growth plunges to the mid-single digits from the mid-20s in a single quarter.
Is the slowdown the result of the company cracking down on marketing? Have hospitals grown more cautious because of safety issues? Or is the slowdown merely the result of a spotlight getting shone on healthcare costs?
Whatever the reason, it has led to a reset of Intuitive's growth. How hard a reset? This quarter's results should hold a clue.
P.S., I was supposed to meet with Guthart a few weeks ago but couldn't make it because of my move to the West Coast. I look forward to meeting him at some point.
Green Mountain ... Soup
I still can't get beyond the image of a Keurig coffee maker also brewing soup. But that's the plan, as Campbell Soup (CPB) and Green Mountain Coffee Roasters (GMCR) have announced Campbell Soup K-Cups for use in the Keurig.
As I said on Real Money's Columnist Conversation after the news came out this week, this will likely go down as an asterisk in brand extensions. It's the result of both companies doing what consumer-products companies should always be doing: tossing everything against the wall to see what will stick.
What next -- K-Cup stroganoff? Unlikely, but -- the company is expected to chat about a new SodaStream (SODA)-like carbonated drink product at its investors' day next Tuesday.
What an Herbalife
I'm often asked if recent events surrounding Herbalife (HLF) have convinced me that my critical reporting of the company -- notably my online documentary at CNBC, "Selling the American Dream" -- was misguided.
To which I say: No. And I wouldn't change a word of what we reported.
The most recent stock-lifting event was Post Holdings (POST) CEO William Stiritz's personal purchase of 5.2% of Herbalife shares. Stiritz's stake is on top of Carl Ichan's big position, as well as sizable stakes by other notable investors, including George Soros.
None of that answers the more important question that seems to have been laughed away in the hedge-fund sideshow of a food fight over Herbalife: Is Herbalife operating in a gray area of multi-level marketing regulation, where the line between legitimate multi-level marketing and pyramid scheme is blurred?
Until regulators decide one way or the other, the risk remains. And Herbalife apparently is not taking that risk lightly. According to Politico, Herbalife is lobbying up.
For good reason, in my opinion.
