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Intuitive Surgical Stock (NYSE:ISRG): Waiting For a Discount Might be Futile
Stock Analysis & Ideas

Intuitive Surgical Stock (NYSE:ISRG): Waiting For a Discount Might be Futile

Story Highlights

Intuitive Surgical’s remarkable history of consistent growth is driven by the growing global trend toward adopting robotic surgery, a field that is still in its infancy. Although the stock may seem pricy, its distinctive market positioning and substantial growth prospects could uphold a premium valuation, leaving no room for investors to buy it at a discount.

Waiting for Intuitive Surgical stock (NASDAQ:ISRG) to trade at a discount might prove futile. I am usually very skeptical of hefty valuations, but when it comes to Intuitive Surgical, it’s quite likely that investors will always be willing to pay a premium. The robotic surgery market leader continues to innovate and grow in a market that is still in its infancy, signaling exceptionally promising prospects ahead. Given the very probable sustainability of Intuitive’s upward momentum in this evolving market, I am bullish on the stock.

Intuitive’s Growth Shows No Signs of Slowing Down

Intuitive Surgical continues to chart an impressive growth trajectory, riding the wave of increasing global adoption in the robotic surgery industry. Despite substantial strides made in the field over the last few decades, the industry is still in its infancy, offering vast potential for expansion. Through following the industry, I see that a prominent trend toward minimally invasive procedures has gained momentum.

Essentially, hospitals enthusiastically embrace these cutting-edge techniques, recognizing the potential for increased surgical revenues and reduced expenses through fewer complications and shorter hospital stays. At the same time, a growing number of patients are searching for a more comfortable and efficient surgical experience. Intuitive has leveraged the harmonious integration of state-of-the-art technologies with eager reception from both hospitals and patients, resulting in unparalleled success over the years.

If you go and check Intuitive’s growth metrics, the initial impression may not immediately evoke a sense of “spectacular.” To provide context, the company has maintained a compound annual growth rate of 11.5% and 8.2% in revenues and EBITDA, respectively, over the past decade. However, the true marvel lies in the enduring success story that Intuitive has crafted. Embarking on a long growth journey since its inaugural sales in 1999, Intuitive stands as one of the pioneering innovators in the field of robotic surgery.

The momentum behind Intuitive’s success persists to this very day. Its most recent Q3 results underscore the widespread adoption of the company’s cutting-edge systems on a global scale.

The company achieved a remarkable 13% year-over-year expansion of its da Vinci Surgical Systems installed base, reaching a total of 8,285 systems. The persistent demand from hospitals remains robust, with 312 systems placed compared to 305 in the preceding year, underscoring Intuitive’s sustained growth despite its seemingly mature operations. This trend solidifies my earlier observation of Intuitive’s momentum, highlighting the still-early, growing industry-wide adoption of robotic surgery in healthcare.

With a record number of systems online and a rising preference among patients for minimally invasive procedures, as highlighted earlier, da Vinci procedures experienced an increase of approximately 19% worldwide. Consequently, Intuitive Surgical achieved an impressive 11% revenue increase, reaching $1.74 billion.

One-of-a-Kind Investment Case Supports Hefty Valuation

Intuitive Surgical’s sustained expansion, coupled with its one-of-a-kind investment proposition, continues to underpin the stock’s substantial valuation. A glance at the company’s forward P/E might reveal a seemingly exorbitant multiple of 56.6. However, a deeper consideration of Intuitive’s near-monopoly in the industry provides insights into why investors are willing to pay a hefty price for the stock.

Much like how Intuitive Surgical has adeptly capitalized on the global surge in adoption of robotic surgery, fueling its impressive and consistent growth over the decades, the market anticipates this upward trajectory to endure for the foreseeable future. This confidence is rooted in the company’s leading position within the sector, suggesting a sustained competitive advantage that positions it well for continued success in the years to come.

Another interesting factor to consider when assessing the stock’s valuation is the company’s hefty cash position. In the midst of the prevailing upward trend in interest rates, the absence of long-term debt on its balance sheet shields the company from adverse effects. Furthermore, the substantial cash reserve of $6.5 billion not only fortifies its financial standing but also generates a growing stream of interest income.

Illustrated in the Q3 results, the company notched an impressive $56.2 million in interest income, marking a staggering leap from the previous year’s $3.9 million. This element undeniably contributes to a more optimistic reception from investors, fostering the bullish sentiment towards the stock.

Is ISRG Stock a Buy, According to Analysts?

As far as Wall Street’s view on the stock goes, Intuitive Surgical features a Strong Buy consensus rating based on 16 Buys and three Holds assigned in the past three months. At $333.44, the average ISRG stock forecast implies 4.9% upside potential.

If you’re wondering which analyst you should follow if you want to buy and sell ISRG stock, the most profitable analyst covering the stock (on a one-year timeframe) is Richard Newitter from Truist Financial, with an average return of 23.36% per rating and an 81% success rate. Click on the image below to learn more.

The Takeaway

Overall, I would argue that waiting for a discount on Intuitive Surgical stock may be an exercise in futility. The company’s relentless innovation and dominant position in the still-infant robotic surgery market signal promising prospects. Despite seemingly modest growth metrics, Intuitive’s enduring success story, reflected again in its recent Q3 results, solidifies its momentum and underscores the industry’s ongoing adoption of robotic surgery.

The stock’s valuation, while seemingly hefty, appears to be supported by Intuitive’s unique investment case, near-monopoly status, and robust financial position, which form a rather compelling choice for long-term investors.

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