NEW YORK (TheStreet) -- Known for its consistent, rock-solid growth, Intuitive Surgical (ISRG) has been riding the wave of high expectations over the past couple of years as the stock price has climbed from $100 a share in 2009 to $583 this past January. But as is often the case with high-flyers who consistently escape valuation concerns, there's a point when the music stops.
Unlike other strong med-tech giants like Medtronic (MDT) and Stryker (SYK), shares of Intuitive Surgical have always been expensive. It wasn't hard to figure out when the party was over; Intuitive's investors just didn't want to leave. In January, as the stock peaked, Intuitive posted poor growth results and management followed with a warning in July advising that second-quarter results were going to disappoint.
Even with that warning sending Street estimates lower, the company missed its revenue targets for the July quarter and posted a 3% decline in operating income, about 7% short of estimates.
Three months later, things have not improved. After another earnings disappointment, the stock is down close to 40% from its January high. While I do believe these shares have now reached more rational levels, given that growth in the procedures segment continue to erode, it's anyone's guess as to when the stock will find a bottom.
Although the stock started to decline following the January quarter, shares were up more than 12% in the 30 days leading to the third-quarter report, which suggested optimism among investors. Unlike Stryker and, to a lesser extent, Johnson & Johnson (JNJ), the Street wasn't expecting much for Intuitive this quarter. But with a 7% year-over-year decline in overall revenue, Intuitive went in the opposite direction.
Much of the disappointment was attributable to a 32% decline in systems revenue, which Intuitive claimed was adversely impacted by uncertainty surrounding the implementation of the Affordable Care Act (Obamacare). Now I can't blame this on the company's management since it pointed to Obamacare cited as the reason for the decline. Stryker, and to a lesser extent St. Jude, said the same thing.
But while it's true that hospitals have begun to adjust their spending priorities, I won't ignore that July quarter. Intuitive posted a 6% decline in system revenue. The Affordable Care Act had nothing to do with that. The stock, nonetheless, traded well above $420 a share, which means investors ignored signs of deteriorating growth. Even then Intuitive demonstrated considerable weakness in unit sales, which declined by 5%.
In this quarter, however, unit sales plummeted 35%, led by a 43% decline in U.S. business. The consistent strength of the Instrument and Accessories business, which were up by roughly 10% year-over-year, kept this quarter from complete disaster. Even then, compared to the July quarter, growth in Instruments and Accessories slowed by 8%.