Thursday, July 13, 2006

Calls of Note Part 3

- Piper is positive on Intuitive Surgical (NASDAQ:ISRG) after they surveyed 219 members of the Society of Gynecologic Oncology (SGO) that had staff operating privileges at institutions that owned a DaVinci Surgical System (90 hospitals). Firm's goal was to quantify the interest in DaVinci performed hysterectomies and establish early adoption trends. Firm received 69 responses for a 31.5% response rate, indicating a strong interest in this topic.

In the next twelve months, 38.8% of respondents (26 doctors; 5 more plan to start) indicated they will be performing hysterectomies with the DaVinci system. Although off a small base, this group expects to dramatically ramp their volume from an average of 8 in the last 12 months to an average of 27 procedures in the next twelve months, a 242% increase (median ramps from 4 to 20, up 400%).

Based on the survey, the addressable market for DaVinci hysterectomies could be most of the approximately 600,000 domestic procedures performed. Firm previously believed the best new application of the DaVinci would be radical hysterectomy (approximately 50,000 procedures per year), where the enhanced visual precision facilitates cancerous lymph node removal.

Piper notes they think this survey supports a more aggressive growth outlook for 2007 and beyond. While they believe Q2 results will be strong, they will wait to revise their 2006 estimates until after the quarter. Firm's forecasts for 2006 remain slightly above management guidance at 52% revenue growth for the year, and are the highest on the Street.

Firm is increasing their 2007 system sales forecast from 174 systems to 196 systems (up 40 from our 2006 forecast of 156 systems) The result is an increase in total 2007 revenue forecast from $438.3 million to $475.2 million for a 2007 growth rate of 39%, down from 52% forecast for 2006, but still quite robust. Excluding stock compensation expense, 2007 EPS estimate goes from $2.57 to $2.85 (consensus $2.41), up 42% over 2006.

Reits Outperform and $130 tgt.

Notablecalls: I think this call is bound to generate interest in ISRG.

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