Is Intuitive Surgical Stock a buy it now?


Robotics-surgery manager Intuitive surgeryit is (ISRG 2.65%) stock has been an incredible long-term winner. Since its initial public offering (IPO) in 2000, the stock price has risen more than 10,800%, a testament to investing in industry disruptors that are also improving the world.

However, results from Intuitive Surgical have been a little more inconsistent in recent years. The competition for robotic surgery is heating up, but the biggest hurdle here has been the pandemic. Growth in the second quarter of 2022 slowed to a trickle as the company tries to navigate supply chain and COVID-19 surgical restrictions in some markets. It remains an industry leader, but is Intuitive Surgical a buy now?

Slower growth due to supply chain issues

Intuitive Surgical’s stock is plummeting into 2022. The price has fallen nearly 40% year-to-date with just one week remaining in July, perpetuated by slowing growth.

The second quarter of 2022 was a disappointment, with revenue growing only 4%. The reason? Only 279 da Vinci surgical systems have been placed in the last three months, compared to 328 during the same period a year ago. Additionally, of the 279 placed systems, 117 (42% of the total) were sold under an operating lease or usage-based contract, compared to only 33% of total systems placed a year ago under an operating lease. or a usage-based agreement. As a reminder, Intuitive earns income from this type of investment over time, compared to a larger upfront payment for an outright sale.

A few months ago, management warned that supply chain issues (specifically, not getting enough components to build machines), shipping cost inflation, and COVID-19 lockdowns on some markets were going to hurt the placement of the system in the second quarter. Although it was more serious than expected, the good news is that Intuitive’s total installed base of da Vinci systems is still growing.

More importantly, the demand for robot-assisted surgery is also increasing. Systems placement sales are now down year-over-year through the first half of 2022, but continued instrument and service sales are steadily increasing.

Segment revenue

First semester 2022

Increase (decrease) year over year

System slots

$803 million

(0.6%)

Instruments and accessories

$1.71 billion

13.6%

Services

$501 million

12.3%

Total income

$3.01 billion

9.1%

Data source: Intuitive Surgical. YOY = year after year.

A high price for a good reason

There are a few consequences to the T2 disappointment. First, revenue growth could accelerate in 2023 because this current year sets such a low bar to break. As Intuitive overtakes its depressed number of da Vinci systems placements next year, revenue expansion could be revived.

Intuitive Surgical’s profitability (measured by earnings per share and free cash flow per share) also fell from its all-time high of last summer. The company is constantly investing in new system innovations to increase the number of procedures surgeons can perform. Over time, I expect profitability to also pick up and help Intuitive’s shares return to market momentum.

Data by Y-Charts.

Finally, there’s the balance sheet, which had $8.18 billion in cash and investments and zero debt at the end of June 2022. It’s an exceptionally strong healthcare tech built for profitable growth. long-term.

After being heavily sold this year, shares of Intuitive Surgical are trading at 47 times company value to free cash flow. It’s the company’s cheapest valuation since the pandemic began, but it’s still a steep price point that assumes the company will be a steadily growing company for the foreseeable future.

Intuitive Surgical has a long streak of growth ahead of it (most surgeries in the world are still performed without any robotic assistance), and it’s still early in its transition to a “stock of value” ($500 million in shares were repurchased in the last quarter). Given that, I’m still in accumulation mode. If you do decide to buy, remember to start small and fit the stock into a well-diversified portfolio that includes stocks from other healthcare companies and stocks from other sectors of the economy.

Nicholas Rossolillo and his clients occupy positions in intuitive surgery. The Motley Fool fills positions and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.