Perhaps Dr. Gary Guthart -- CEO of Intuitive Surgical (ISRG 0.63%), the maker of the daVinci surgical robot -- learned a lasting lesson in 2013 and 2014. That was when a number of negative events coalesced -- including questions about robotic surgery's efficacy, and the onset of the Affordable Care Act -- and Wall Street ruthlessly punished the stock. The stock fell 40% over the course of 20 months.
Since then, however, it's been a different story. The stock has more than quadrupled as Guthart has continually lowballed expectations -- and overdelivered on his promises.
Image source: Getty Images.
Case in point: At the start of 2013, Guthart and his team told investors to expect procedure growth of 20% to 23%. What followed was thoroughly disappointing. When the next year's results only barely met expectations, investors were worried.
Data source: SEC filings and company conference calls. Chart by author.
But then, the company seemed to learn its lesson. Management was well aware that it had two enormous growth drivers: international expansion and continued tinkering with the daVinci that could lead to ever more procedures using the machine.
Here's how the company performed against expectations over the next four years.
Data source: SEC filings and conference calls. Chart by author.
Here's the key: In the first chart, all the blue bars were below the red line. In the second chart, all of the blue bars were above the red line. Yes, results matter on an absolute basis. But because investing is a forward-looking activity that has people (investors like you and me) making moves based on the future, expectations matter, too.
When management at a company is able to hold investor expectations in check, three valuable things happen:
- Investors are able to get a much more realistic view of the future and make decisions about where they want to invest accordingly.
- Management gives itself some breathing room in the case that the company experiences difficulties.
- There's much more room for upside surprises, as opposed to the disappointment of falling short of huge expectations.
That's why I'm exceptionally excited by Intuitive Surgical's preliminary earnings release from last week.
We didn't get the same kind of granularity that we'll see when the company reports earnings later this month. But we do know that U.S. General Surgery -- which has been the key growth driver of the past four years via hernia and colorectal procedures -- grew 34%. That's very encouraging; investors should listen closely to see if all of that came from the two aforementioned procedures, or if there's another growth driver at play.
But perhaps most importantly, Guthart said that 2019 procedure growth is expected to come in between 13% and 17%. That's the highest figure the company has put out (to begin a year) since the abysmal performance in 2013. No doubt, that growth in U.S. general surgery, and the potential for more growth abroad, will play a role.
Given what Intuitive and Guthart have delivered over the past four years, it wouldn't be a stretch to believe that Intuitive's total procedure growth for the year ahead could eclipse 20%. That may sound heady, but Intuitive predicts there are 21.8 million invasive surgical procedures in the United States alone every year. Intuitive's worldwide procedures just eclipsed 1 million annually for the first time. Clearly, there's still lots of room to grow.
Executives from other companies -- none more obvious than Tesla's Elon Musk -- could learn something from this. Keep investor expectations in check, and let your results -- not hype -- do most of the talking.
