Intuitive Surgical (ISRG) has maintained its position as a market leader in minimally invasive surgery (MIS) with its flagship product, the da Vinci Surgical System, an advanced robot-assisted surgical system. ISRG has established itself as a compelling player in the healthcare sector, experiencing significant growth over the last two decades. During this period, the stock returned 15,669.1%.
Now, with the artificial intelligence (AI) revolution, Intuitive can improve its systems, potentially leading to increased growth in the coming years. ISRG stock has gained 52.1% year-to-date, compared to the S&P 500 Index’s ($SPX) gain of 22.4%.
Intuitive Surgical: Robust Financial Strength
The da Vinci system allow surgeons to perform complex procedures with greater precision, control, and flexibility than traditional methods. This robotic-assisted system is used primarily in urology, gynecology, cardiology, and general surgery, transforming MIS. These surgeries result in a shorter recovery time.
Intuitive earns revenue not only from the sale of the da Vinci systems, but also from the sale of related instruments and accessories, resulting in recurring revenue.
Intuitive Surgical has seen consistent revenue growth due to the increased adoption of robotic-assisted surgeries. In the most recent third quarter, sales of da Vinci system units, increased procedures, and recurring revenue from instrument and accessory sales drove a 17% increase in total revenue to $2.04 billion. The total number of da Vinci procedures performed worldwide has increased by about 18%. Adjusted net income rose by 26% to $1.84 per share during the quarter.
Huge Scope With AI
Intuitive's consistent revenue growth generates stable cash flow and profitability, allowing the company to invest in R&D and diversify its portfolio. Its R&D efforts include improving existing systems and exploring AI applications.
In March, the company received FDA approval for its fifth-generation robotic system, da Vinci 5. The next-generation system includes 150 enhancements, including sensing technology and improved accuracy and precision, among various other features. Intuitive has expanded its portfolio over the years to include the multiport da Vinci X and da Vinci Xi, as well as the single-port da Vinci SP. The company stated that it intends to "continue developing and innovating da Vinci 5 and da Vinci Xi over the coming years."
Intuitive's early entry into robotic surgery has given it a competitive advantage, with over 9,539 da Vinci systems installed globally as of Sept. 30. Its large installed base provides a consistent source of recurring revenue, making it difficult for competitors to match its reach. Furthermore, hospitals make a huge investment to install these systems and train surgeons to use them.
Several companies, including Medtronic (MDT) and Johnson & Johnson (JNJ), have entered the robotic surgery market. However, the da Vinci system's reputation for dependability and precision has cemented ISRG's market leadership. Although a newer, less expensive product might enter the market, hospitals may be more inclined to choose Intuitive Surgical due to the proven success of the da Vinci systems and the high switching costs. This gives Intuitive a competitive advantage over its competitors.
Robotic surgery procedures are becoming more common, and Intuitive is exploring new specialties and applications to broaden the range of da Vinci-compatible procedures. This growth is expected to drive demand for Intuitive's systems and accessories.
Furthermore, Intuitive Surgical has a strong balance sheet with significant cash reserves and low debt, which should help it thrive in the coming years. It ended the third quarter with $8.3 billion in cash, cash equivalents, and investments.
Analysts that follow Intuitive stock expect 2024 revenue and earnings to increase by 14.2% and 20.7%, respectively. In 2025, revenue and earnings are expected to increase by 16.8% and 13.6%, respectively. Trading at 65 times forward 2025 earnings, Intuitive stock is expensive.
Intuitive's valuation may cause investors to be skeptical. Long-term investors, on the other hand, can benefit from Intuitive's exposure to the growing field of robotic surgery and high-tech medical advances.
According to MarketsandMarkets, the global surgical market is expected to be worth $23.7 billion by 2029, growing at a CAGR of 16.5%.
Given its market position, strong financials, and innovative edge, Intuitive may continue to outperform in the healthcare technology space, justifying the premium paid.
What Does Wall Street Say About ISRG Stock?
Recently, Barclays analyst Matt Miksic reiterated his “buy” rating for ISRG stock with a price target of $510. Truist Financial also maintained a “buy.”
On Wall Street, Intuitive stock is a “moderate buy” overall. Out of the 25 analysts that cover the stock, 15 rate it a “strong buy,” two suggest a “moderate buy,” and eight rate it a “hold.” The average target price of $540.17 is 5.4% above current levels. The high price estimate of $604 implies 17.9% upside over the next 12 months.
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