Large Cap Value Line financial strength rating: A+ Current yield: Nil Dividend raises, past 10 years: NAAGGRESSIVE GROWTH
Ticker symbol: ISRG (NASDAQ) Large Cap Value Line financial strength rating: A+ Current yield: Nil Dividend raises, past 10 years: NA
Intuitive Surgical designs, manufactures, and markets da Vinci surgical systems and their related instruments and accessories and provides training and support in their use. The da Vinci system combines the benefits of minimally invasive surgery with the precision and ease of use of traditional open surgery. Confused?
Have you ever had to replace the timing belt on your car? You probably didn’t do it yourself, since the belt is buried deep in the innards of your engine and is hard to get to. You might need special model-specific tools, you will need a lot of time, and if you set the timing cogs incorrectly when reassembling, you just might destroy your engine the first time you turn the key.
Such was the state of abdominal and thoracic surgeries before the development of endoscopic surgical techniques. Even though the actual area or object of surgical interest in a procedure might have been very small and the surgical act itself trivial, getting in there was anything but. Why? Because even a small surgical tool had to be in the hands of a skilled surgeon, and the surgeon’s hands were (comparatively) huge. The hands had to be deep in the patient, and so did all of the tools that were there just to make access possible. Like the timing belt procedure, removing a gall bladder meant moving aside lots of other stuff—abdominal wall, stomach, pancreas—and holding it all in place during the procedure.
Endoscopic surgical techniques, on the other hand, eliminate nearly all of these complications by putting the surgical tool on the business end of a narrow rod or rods, which are inserted through small holes in the patient. The surgeon then manipulates these tools from outside the patient’s body cavity.
Intuitive Surgical did not invent what has come to be known as “minimally invasive” surgery. Rather, it has refined the methods by using electro-mechanical devices to perform most of the required movements under the control of a trained surgeon. Benefits include reduced risk of infection, reduced blood loss, reduced time spent in the hospital, and generally faster recovery periods. A faster surgical process also means more patients can be attended to with reduced waiting periods. And, in some cases, patients for whom open surgical procedures might not be practical at all can be treated effectively using Intuitive’s products.
One of the big da Vinci “aha’s” is its ability to work in a remote surgical theater. The surgeon’s console, with its controls and imaging systems, and the patient-side cart, with its cameras and robotic arms, can be far apart, allowing the surgeon to perform procedures on patients thousands of miles away, requiring only a solid data link and a local support staff for patient interactions and technical support. Healthcare providers can (theoretically) thus provide expert surgical care in a plurality of locations without the need to staff surgical theaters at every facility.
The company was founded in 1995, went public in 2000, and is now the world leader in robotic-assisted surgery. Its products have been approved for use in abdominal, thoracic, cardiac, urological, gynecological, pediatric, and other procedures.
FY2018 sales advanced at a decent 19 percent clip while earnings tacked on a little over 15 percent as margins dipped slightly. Procedure growth was also 19 percent. Management feels that the system is gaining traction as a de facto standard rather than a novelty, and expects procedure volume to increase. Add to that healthy penetration overseas and one gets continued revenue growth in the 15–20 percent range for both 2019 and 2020. Net income growth is a bit softer at 12–15 percent as overseas sales are typically less profitable. Overseas sales run 28 percent today. Services and consumables revenue should rise as more systems are in place.
The da Vinci system is proving to be not only a boon for experienced operators but also a powerful training tool for those learning new procedures. It has shown to be successful in reducing the time required to achieve competence in complicated procedures. It is rapidly becoming the preferred surgical treatment for localized prostate cancer and allows surgical procedures to be offered to high-BMI (obese) patients for whom open surgery may not have been an option.
The disciplines of medicine are, often appropriately, slow to change. Given that, it’s safe to say that the da Vinci system has made surprising progress in the last decade in advancing the state of the art in surgical technique, safety, and availability. The development of new techniques takes time and the surgical community’s support, but Intuitive has made believers of their users, and the company continues to develop procedures and new hardware for the current platform.
Finally, Intuitive is far and away the market leader and operates (pun intended!) with little in the way of pricing pressure. We feel their forecasts might be conservative; it may simply be a case of under-promising with a plan to over-deliver.
Intuitive is a young company and the hardware equivalent of a pharmaceutical business: massive R&D costs and a long wait for uncertain success. The platform holds great promise, but many of the da Vinci’s potential applications are yet to be developed, tested, and approved. Any new procedures will take time to perfect, and their final approvals are not guaranteed. There’s no question that the company is an exciting prospect, but it’s also trading at 45 times earnings, so bear that in mind when deciding if this is the right stock for your portfolio. It could put your portfolio under the knife.
SECTOR: Healthcare Beta coefficient: 1.00 10-year compound earnings per-share growth: 22.0% 10-year compound dividends per-share growth: NA
|
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
|
|---|---|---|---|---|---|---|---|---|---|
Revenues (mil) |
1,757 |
2,179 |
2,265 |
2,132 |
2,384 |
2,704 |
3,129 |
3,724 |
|
Net income (mil) |
495 |
657 |
671 |
419 |
589 |
736 |
978 |
1,127 |
|
Earnings per share |
4.11 |
5.33 |
5.58 |
3.70 |
5.18 |
6.24 |
8.50 |
9.49 |
|
Dividends per share |
— |
— |
— |
— |
— |
— |
— |
— |
|
Cash flow per share |
4.44 |
5.73 |
6.26 |
4.29 |
5.83 |
6.96 |
9.48 |
10.80 |
|
Price: |
high |
156.4 |
198.3 |
195.2 |
180.4 |
188.3 |
242.4 |
405.0 |
581.1 |
|
low |
87.3 |
143.1 |
117.0 |
115.5 |
149.0 |
167.3 |
208.2 |
365.1 |
Website: www.intuitivesurgical.com