Intuitive Surgical Surges, but Are There More Roadblocks Ahead?

The past few days have been dizzying for investors in the maker of the daVinci Surgical Robotic System, Intuitive Surgical .

Source: Intuitive Surgical.

On Friday, the Journal of Endourology made public a study touting the benefits of robotic-assisted surgery in prostatectomies, sending shares up as much as 10%.

But yesterday, an analyst at Northland Securities published a note stating that the daVinci system was no longer "popular" with hospitals and that the company's single-site three-arm attachment was being offered for as much as 50% off, sending shares down as much as 9%.

Then, finally, the company itself weighed in with preliminary fourth-quarter results. The big story is that revenue, though down from a year ago, will come in 5% higher than expected. That news sent shares up once again, by as much as 12%.

But things still aren't as rosy as this jump might lead you to believe, as a deeper dive reveals trends that are still weighing on the company's performance.

The bleeding hasn't stopped
Though Intuitive is a global company, it still relies on the United States for the majority of its revenue. Even in a down year, for instance, the U.S. accounted for 63% of all daVinci System sales.

Source: SEC filings.

Knowing that, you can imagine the revenue drop created this past quarter when 48% fewer daVinci's were sold when compared to 2012. Add on top of that the fact that the average daVinci system sold for 2% less this year, and that the company brought in 6% less cash per procedure and it's not hard to understand why total revenue was down 5% for this once-fast-growing company.

What does the future hold?
It would have been instructive if the company had broken out the number of hysterectomy procedures in the fourth quarter of 2013 compared to 2012. Instead, it only gave full-year numbers. On the whole, the number of hysterectomies performed increased only 8% -- far slower than in the past, but still enough to account for well over half of all procedures for the year.

The key reason for the slowdown comes from increased skepticism  on behalf of the medical community regarding the efficacy using the daVinci in hysterectomies.

Source: SEC filings.

For long-term investors, though, all is not lost. A major factor in the slowdown of system sales in the United States revolves around financial uncertainties due to the rollout of the Affordable Care Act. As insurers and hospitals become more comfortable with the new playing field, that trend could reverse.

But more importantly for those willing to hold shares for decades is the growth of "general surgery" procedures. As it stands now, gynecological and urological procedures account for more than 75% of all surgical uses for the daVinci in the United States.

There's nothing inherently wrong with that, but as doctors continue to experiment with ways to use the daVinci to help them in other areas, the robot could become infinitely more valuable. Over the past two years alone, these general operations have increased a remarkable 440%. What once made up just 4% of all procedures has exploded to account for more than 15%.

And that's the reason why for now I fully intend to hold my shares, which account for roughly 4% of my real-life holdings.