Intuitive Surgical to Benefit as COVID-19 Wanes

Intuitive Surgical (ISRG) is the leader in the development, manufacturing, marketing, and sales of robotic-assisted surgery systems worldwide. Intuitive pioneered the da Vinci surgical system.

Intuitive Surgical stock has had a rocky start to 2022, like the rest of the market, down 22%. However, the headwinds that have tempered results in recent periods, namely COVID-19 and its effect on hospitals, are beginning to subside, and the company’s financial house is in terrific shape for the future.

The author is bullish on Intuitive Surgical stock.

The Intuitive Advantage

Robotic-assisted surgery has several advantages for patients, doctors, and hospitals. The surgeries are less invasive than traditional methods. This means there are fewer complications, the patient can leave the hospital sooner, and require less aftercare.

Recovery times are often shorter, and the patient will experience only minor discomfort. This is why, as of the end of 2021, there were 6,730 total systems installed globally, a 12% increase over the prior year.

The da Vinci surgical system is the dominant robotic-assisted device on the market. According to one estimate, Intuitive accounted for 80% of the global market in 2020. This market reached $5.5 billion in 2020 and is expected to grow aggressively over the next decade. Being a first-mover in this industry is tremendously important.

First, hospitals will have high switching costs, encouraging them to stick with the da Vinci system. Surgeons familiar with the design and trained on it will likewise be hesitant to switch. Next, there are significant barriers to entry into the market. It is expensive and challenging to develop a system, get it approved, and bring it to market.

Advantageous Business Model

The next advantage that Intuitive Surgical has is its business model. Many might expect that the company makes the majority of its revenue from selling the surgical system. This would mean that as the market becomes saturated, sales would be harder to come by. This is not the case.

Intuitive makes most of its revenue from recurring sources, namely instruments, accessories, and services. Many instruments are single-use due to the nature of surgical procedures. This means that each system installed continues to provide revenue throughout its life. In 2021, 75% of sales were from recurring sources.

During the height of COVID-19, many hospitals put off or canceled non-emergency procedures to focus on COVID-19 patients. That tempered Intuitive’s results. The U.S. has seen a precipitous drop in COVID-19 cases since the peak of the Omicron variant, which is highly encouraging.

Dissecting Recent Results

Intuitive Surgical reported Q4 and full-year 2021 results in January and again posted impressive numbers, albeit with less growth than would be optimal due to the pandemic. Revenue grew from $4.4 billion in 2020 to over $5.7 billion in 2021, a 31% increase.

Intuitive continued to produce tremendous margins. The gross margin for 2021 came in at 69%, while the operating margin was 32%. This improved over 2019 and 2020 when the operating margin was 31% and 24%, respectively. Intuitive’s profitability is consistently impressive.

Because of its profitability, it keeps a large balance of cash, short-term, and long-term investments on hand. It also has no long-term debt. As of the end of Fiscal 2021, Intuitive reported over $8.6 billion in cash & equivalents and investments on the balance sheet. This equates to around over 8% of the company’s current $103 billion market cap.

This cash hoard means that the company makes revenue from interest and has the resources available to invest in research and development, make acquisitions, or possibly return cash to shareholders in the future.

Wall Street’s Take

Over on Wall Street, analysts are bullish on Intuitive’s stock. Analysts have a Moderate Buy consensus rating based on 10 Buys, six Holds, and one Sell rating.

The average Intuitive price target of $325.53 implies 12.9% upside potential.

Intuitive Is Built for Long-Term Gains

Intuitive currently trades more than 20% down from its 52-week high. Headwinds from COVID-19 and the overall decline in equities have contributed to the losses. This pullback could be just what the doctor ordered for investors looking to initiate a position or accumulate more shares on weakness.

As COVID-19 wanes, growth should return. Intuitive has a fortress balance sheet, is the clear industry leader, and is set up to outperform the market for long-term investors.

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