Calls of Note Part 4

Wachovia taking a closer look at the hysterectomy opportunity of Intuitive Surgical (NASDAQ:ISRG).

There are over 600,000 hysterectomies performed in the U.S. annually and firm believes that 250,000 of these are potential da Vinci procedures. These 250,000 procedures include 200,000 complex-benign cases and 50,000 cancer cases. ISRG expects to be > 2% penetration (roughly 5,000 procedures) by the end of 2006.

Firm's current estimates are based on the assumption that da Vinci hysterectomy penetration reaches 4% in 2007, 6% in 2008, and 8% in 2009. Their sensitivity analysis shows that if hysterectomy follows the same adoption curve as prostatectomy (reaching 8% in 2007, 20% in 2008, and 35% in 2009), EPS would be $0.10 higher in 2007, $0.30 higher in 2008, and $0.59 higher in 2009 (this assumes system sales stay fixed at their current estimates).

ISRG now estimates that the U.S. market could handle 4,000 systems (1,000 hospitals with 3 systems and 1,000 hospitals with 1 system) and the international market could handle 2,000 systems (500 hospitals with 3 systems and 500 hospitals with one system). This results in a system market of $1.6B and an instrument market of $3.2B. Currently, the U.S. is at just 10% penetration (395 systems) and international is at just 6% penetration (120 systems).

Reiterates Outperform with $124-$136 valuation range.

Notablecalls: Nothing fundamentally new here, just serves as a reminder of how much upside there might be in the best case scenario. However, the stock is a mover and is sitting near the 52-week lows, so such comments may drive the stock once it starts going.