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Intuitive Surgical: Fantastic Company, Expensive Stock

Intuitive Surgical (NASDAQ:ISRG) is focused on innovating to enhance the quality of, and access to, minimally invasive care. The company's primary offering is its platform for...
Intuitive Surgical: Fantastic Company, Expensive Stock © Reuters. Intuitive Surgical: Fantastic Company, Expensive Stock

Intuitive Surgical (NASDAQ:ISRG) is focused on innovating to enhance the quality of, and access to, minimally invasive care.

The company's primary offering is its platform for robotic-assisted surgery, comprising its family of da Vinci Surgical Systems. As robotic surgery volumes continue to gain traction worldwide, the company's top and bottom lines have been snowballing for years.

Being the most comprehensive company in the market, Intuitive Surgical is likely to remain a leader in its industry, and continue expanding its operations and financials.

That said, its stock has lately become too pricey to ignore the risk of a potential valuation compression. For this reason, I am neutral in the stock. (See ISRG stock charts on TipRanks)

Recent Results

Intuitive Surgical's Q2 results were truly impressive, mainly because of the company's growth acceleration. Hospitals were flooded last year as a result of the COVID-19 pandemic, causing Intuitive Surgical's da Vinci deliveries to slow down. However, moving into 2021, Intuitive has been firing on all cylinders.

In Q2, revenues came in at $1.46 billion, a 72% increase year-over-year. Not only is this figure well above the company's pre-COVID levels, but it's also a new quarterly sales record.

The company delivered 328 da Vinci systems, 84% more versus the comparable period last year, expanding its installed base by 10% to approximately 6,335 systems. This number is quite remarkable considering that in markets such as Europe, COVID-19 and its variants continue to limit the capabilities of hospitals.

It's also worth emphasizing Intuitive Surgical's juicy margins, which returned to normalcy quite quickly. Stable margins are an essential characteristic in determining the company's future profitability and evaluating its valuation multiple.

Due to Intuitive's minimalistic operations and tidy balance sheet, which doesn't hold a single dollar of long-term debt, apart from its operating and R&D expenses, the leftover gross profits drop down to the bottom line.

Hence, Intuitive's net margins rebounded to north of 35% in its most recent quarter. The company is a cash cow, which after being profitable quarter after quarter, has accumulated a massive cash position of $7.7 billion, without raising any debt or equity in the meantime.

Valuation Is Hard to Swallow

The stock's valuation multiple has expanded to new highs, which is likely to reduce future upside. The forward P/E currently stands way beyond its historical average, at 60.6.

Further, the company has never paid dividends and has not stated any intentions of doing so. Hence, investors should expect to enjoy returns only in the form of capital gains, at least in the medium-term.

The company does, however, repurchase shares in order to return capital to its shareholders. Buying back stock at such a high multiple is unlikely to benefit shareholders, though, as the company could be overpaying for its own stock. Hence, investors should be wary of the stock's current valuation and its effect on the short-to-medium-term upside (or downside) potential.

Wall Street’s Take

Turning to Wall Street, Intuitive Surgical has a Moderate Buy consensus rating, based on five Buys, nine Holds, and zero Sells assigned in the past three months. At $1,012.08, the average ISRG price target implies 1% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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 EUR/USD1.1595↑ Buy
 GBP/USD1.3765↑ Buy
 USD/JPY114.15Buy
 AUD/USD0.7501↑ Buy
 USD/CAD1.2385Neutral
 EUR/JPY132.36↑ Buy
 EUR/CHF1.0666Neutral
 Gold1,792.35↑ Sell
 Silver24.087↑ Sell
 Copper4.4860↑ Buy
 Crude Oil WTI84.61↑ Buy
 Brent Oil85.64Neutral
 Natural Gas6.036↑ Buy
 US Coffee C208.30↑ Buy
 Euro Stoxx 504,223.97↑ Sell
 S&P 5004,578.60↑ Buy
 DAX15,757.06↑ Sell
 FTSE 1007,277.62↑ Buy
 Hang Seng26,038.27↑ Buy
 Small Cap 20002,300.50↑ Buy
 IBEX 359,001.60↑ Sell
 BASF63.740↑ Buy
 Bayer48.83↑ Buy
 Allianz201.95↑ Buy
 Adidas280.25↑ Sell
 Lufthansa5.628↑ Buy
 Siemens AG141.36↑ Buy
 Deutsche Bank AG11.905↑ Buy
Mua/Bán 1 chỉ SJC
# So hôm qua # Chênh TG
SJC Eximbank5,800/ 5,850
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(0/ 0) # 900
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SJC Danang5,790/ 5,862
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KRW16,8320,49
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