Intuitive Surgical
Unlike other companies, Intuitive Surgical has a lot of detractors. For the moment, they are of an external nature: COVID-19 has proven a major problem for medical device specialists.
ISRG is trading at 57 PeFwd, which is twice as high as the average market. The agio is warranted because of its superior product range, yet if headwinds continue, the equity valuation could suffer.
ISRG is a recovery play and a high conviction call. Its business was hit hard by the coronavirus outbreak. Non-emergency surgeries were postponed during part of 2020. As a result, Intuitive’s revenue slipped 22% year over year in Q2 and 4% in Q3. However, its shares still jumped 38% in 2020 as investors looked forward to better days ahead.
Intuitive Surgical’s major revenue stream comes from selling replacement instruments and accessories. When more procedures are performed using its da Vinci robotic surgical systems, Intuitive’s revenue goes up.
Aging populations across the world will drive increased demand for surgical procedures. Meanwhile, Intuitive continues to launch innovative new products to expand the types of procedures that can be performed using surgical robots. Intuitive’s market opportunity is massive because only a small percentage of procedures can currently be done with robotic assistance.
Long-term outlook: The need for minimally invasive surgeries is not set to decrease. Actually, with an ever-aging population the opposite is expected to happen. This trend is a stable tailwind for the company which is well ring-fenced. A single unit from the company sells between $500,000 and $2.5 million; this comes on the top of instruments, accessories, and training. These recurring items tend to generate much higher margins than the initial sale. Thanks to these recurring items, ISRG is engaged on a valuable long-term trend that could benefit investors.