Opinions
The Monthly Gems by Allan Tong
Intuitive Surgical Inc.
ISRG-Q
TOP PICK
Jan 02, 2025
Stock price when the opinion was issued
You might be interested:
We would look at P/E (61X, vs 3-year 72X), P/CF (72 vs 70X) and earnings growth (18% vs 30%). Overall growth rates have slowed as the company gets bigger, but free cash flow has surged anf the company has $4B net cash. The stock is down 6% YTD. We think $475 would look good.
Unlock Premium - Try 5i Free
Primarily US-based. Main customers are hospitals, so there can be funding concerns. Long-term, very good secular growth in robotic surgery. Tends to trade at very high multiple. When rates are high, as they have been, hospitals pause on the more costly budget items.
In the healthcare sector, but not really a defensive the way pharma is.
EPS of $1.81 beat estimates of $1.72; revenue of $2.25B beat estimates of $2.18B. EBITDA of $771M missed estimates of $864M. It was a good quarter, with revenue up 19% and earnings up 21%. The company did lower guidance a bit, but this was due to tariffs, which could be delayed, or reprieved, and should not be permanent (maybe) and should not be a big surprise. Intuitive Surgical's cut to gross-margin guidance due to tariffs may overshadow the 1Q beat and higher procedure-volume outlook. Management expects a 170-bp hit in 2025, split roughly between China and imports from other countries, particularly Mexico, with the impact expanding throughout the year. Guidance for procedure growth rose to 15-17% for the year from 13-16%, driven by strong utilization in Europe. US bariatric-procedure volume continues to face pressure from the use of GLP-1 weight-loss drugs, declining mid-single-digits in the quarter. Further pressure could come from the emergence of oral versions of the drugs. Intuitive placed 367 systems in 1Q, slightly below expectations, yet roughly in line with 4Q-1Q seasonality seen last year. Of those placed, 147 were da Vinci 5s. Very good growth overall is expected over the next two years, despite these issues. The company now has $9B cash and generating $2.4B cash annually. The long term thesis and moat here have not really changed, and any good news on tariffs would be positive for the stock, which has actually held up OK in this market considering its high valuation (up 26% in a year, down 8% YTD). The conference call did not add much in the way of detail, but other than tariffs the tone was positive. We would be OK buying this still, in the context of overall market volatility and with a 3+ year holding period.
Unlock Premium - Try 5i Free
We would be comfortable buying today; We would look for perhaps $525, but it is not really a stock to try to catch a perfect price on. It is up 10,079% in 20 years. But markets look to decline at the open today.
Unlock Premium - Try 5i Free
When he looks at a company, the first thing to look at is the group that they're in. You can have a great company in a group that's out of favour, and have a difficult time.
Will be a big beneficiary from the move in AI. Problem is that healthcare device companies in general are under pressure. Healthcare itself is under political pressure. Nice house in a tough neighbourhood.
ISRG presented today at a Wells Fargo investment conference. It discussed margins and international and tariff challenges. Margins this year will be 66% but move to 70% average over the next three to five years. It plans to mitigate tariffs through higher prices. This is slightly negative, but typically conference 'reactions' are overdone. But, down 16% YTD, we would be OK buying, but would do so slowly. There needs to be a sector catalyst to spark the stock, and today's news is not going to do it. But tariffs of course are not 'new' and the long term picture we doubt has really changed.
Unlock Premium - Try 5i Free
After a flat first half to 2024, back-to-back earnings beats in July and October lifted ISRG shares from the low-$400s to the mid-$500s by the fall. The last two quarterly reports stressed that an increasing number of surgeries within the U.S. and internationally is the key driver. For instance, the company's October reported said that procedures rose 18%, beating estimates of 17.1%. The quarter before, this number climbed 14% in the U.S. and 22% abroad.