A Downside Gift Gap Hits ISRG

Buy March Calls for a 100% Gain

By Bryan Bottarelli
Friday, February 03, 2006 3:02 PM EST
Fri, 3 Feb 2006 20:02:00 GMT

Dear Bottarelli Research Member,

Ever since I saw a news report on the amazing operation technology used by Intuitive Surgical’s Da Vinci Surgical System, I’ve kept a close eye on ISRG stock. And quite frankly, it’s been nothing but remarkable upside strength.

Over the last year, the stock has gone from $40 up to $140. That’s a 250% gain. I don’t know about you, but I’m certainly not one to bet against a stock in the midst of such an amazing run. Today, we could be looking at a “gift” of an entry price. Here’s the backdrop:

Today, Intuitive Surgical (ISRG – NASDAQ) posted a sharp rise in fourth-quarter earnings on sales of their Da Vinci surgical systems. They reported net income of $49.5 million, or $1.31 per share, up from $11.7 million, or $0.32 cents per share, a year-ago.

Analysts expected earnings of $0.49 cents per share. ISRG posted sales of $1.31 per share. That’s remarkable. But when you look at the chart, you’ll notice that stock is getting hammered today. As I write, it’s down over $11.00. What’s going on?

ISRG

Here’s what I think is happening:

When it comes to earnings reports, Wall Street wants companies to not only beat expectations, but they also want them to raise their guidance. The combination of both items is when you see a huge stock up-day. Although ISRG blew away earnings expectations, they forecasted fiscal 2006 revenue in a range between $284 and $307 million. Since the consensus estimate was already $307 million, this was taken as the company not raising their guidance — and thus today’s sell-off.

In my view, this is completely unwarranted. In fact, if you look at ISRG’s announcement history, they always offer conservative initial guidance and them increase their projections during the year. That way, they’re giving investors a more accurate look at their numbers, instead of telling Wall Street what they want to hear — only to disappoint later on. Either way, I feel today’s sell-off is totally unwarranted. It’s time to buy calls.

PLAY: Buy the ISRG March 115 Calls (AXQ CC) at or under $9.50, good for the day. Current bid/ask spread is $8.80 to $9.20. Place a protective stop loss at $5.00.

If ISRG can fill this gap my the end of March, these calls can increase by $10.00, good for an easy double.

UPDATES

Your BSTE February 50 Puts (BQS NJ) were stopped at $2.00, as they were not able to translate the market’s downside pressure into new 52-week lows.

Your ECLG March 20 Calls (EGU CD) continue to tread water, as the stock attempts to set another new 52-week high. Of course, it’s hard to set new highs in a weak market environment. They currently trade for $1.35. Hold.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From February 2006