Intuitive Surgical the New Big Blue
Back in the eighties it was said that no-one was ever fired for buying IBM. In the teens Intuitive Surgical will enjoy as strong a franchise in surgical equipment as IBM once enjoyed in main frames. No-one will ever be fired or sued for buying a da Vinci® Surgical System. Intuitive’s high margins have attracted competition, so margins may compress over the years; however, their substantial lead will ensure they are the robotic supplier of choice.
Let’s look at the margins, the growth, the story and valuation.
MARGINS
Quarterly operating and profit margins from Q1 2010 backwards.
| Op Margins | 39.5% | 39.7% | 37.3% | 38.2% | 23.9% | 35.7% | 36.0% | 35.7% | 34.5% | 38.7% |
| Profit Margin | 26.0% | 24.0% | 23.0% | 23.9% | 14.9% | 21.9% | 24.4% | 23.4% | 23.8% | 25.9% |
ROIC in the latest quarter was 19.5% and proceeding that 16.3%, 15.6%, 16.4%, 16.7%, 18%,19.3%, 19% and 18.2%.
Fantastic margins and returns as they should be for a company dominating its niche.
GROWTH
39% PA for the last five, forecast 24.5% for the next five.
Free Cash Flow |
Cash From Operations
|
Charts Copyright Bloomberg
THE STORY
Public in 1998 and introduced the da Vinci® Surgical System in 1999. Commercialized robotic surgery with a razor and blade model. Installed base is now over 1,400 and growing fast, Intuitive have entered the tornado. From here the recurring revenue compounds on the growth while adding a consistent base on which to build future sales.
When your geeky technology is featured on a prime time show like Grey’s Anatomy you know you’ve leapt the chasm (the gap in technology adoption, which is between the early adopters and the early majority pragmatists).
VALUATION
ISRG is not at one of its inexpensive points, and is exposed to a large possible falls if markets tank or signs of future hospital capex cuts emerge. As a long term investor I’m going to keep ISRG on my watchlist with a plan to buy when it’s relatively cheap. ISRG fails my roughest 3:1 valuation as it could fall $100 more easily than doubling from it’s current $332. ISRG’s market cap of $13B places it second in medical devices behind the $47B Goliath Medtronic.
See the P/E graph below. ISRG’s P/E has been between 40-50 since increasing last July from the recession low range of 20-30.
The following current ratios illustrate ISRG is fairly priced
| Trailing P/E (ttm, intraday): | 45.24 |
| Forward P/E (fye Dec 31, 2011)1: | 32.60 |
| PEG Ratio (5 yr expected): | 1.65 |
| Price/Sales (ttm): | 11.20 |
| Price/Book (mrq): | 7.55 |
| Enterprise Value/Revenue (ttm)3: | 10.30 |
TECHNICAL
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=isrg&time=&freq=
10% down to $300 would lower the P/E to 40. That’s my first point of heightened interest.
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