Is Intuitive Surgical Stock Still a Buy?


Actions of the pioneer of robotic surgery Intuitive surgery (NASDAQ: ISRG) have more than doubled since the start of 2019. It may appear that this boat has been missed, but this business has followed a trend of massive secular growth that is expected to continue for many years to come. In this clip from Motley Fool Live show “The 5” that aired on September 16, contributors Jason Hall, Clay Bruning and Nicholas Rossolillo explain why the Intuitive Surgical stock still deserves serious consideration.

Jason Hall: Let’s go ahead and move on to Intuitive Surgical, ISRG ticker. Clay, so Intuitive Surgical reported awhile ago, reported in August, and it’s been a while, but it has certainly been a good quarter. We have seen so much to improve in the COVID year when so many elective procedures, even though the things people needed to do have been delayed or postponed. But their business model is really starting up and the innovation engine is still working there.

Clay burnishing: Absoutely. For those unfamiliar with Intuitive Surgical, this is a robot assisted surgical system. So basically instead of using the hand of a human surgeon, who can have tremors or jerky movements at any time, which could lead to unfortunate complications, they have surgeries that reduce all of these variables to have results more consistent with the end goal of trying to reduce overall costs, whether for hospitals, for patients, etc. As many of you can imagine, surgery has been difficult in 2020. But it is starting to show signs of rapid return.

A few financial notes, 77% year-over-year increase in surgeries in the US, quarter over quarter for the second quarter of 2021 compared to 2020. Then they’ve also been enough generous to compare growth over two years, so that was 16% annualized growth from the second quarter of 2019 to the second quarter of 2021 in the United States only. Again, on that two-year basis, just under 20% annualized growth. More importantly, some of the emerging markets, especially China, are really starting to install more systems. China is highly regulated in terms of limiting the number of surgical systems, whether intuitive or otherwise, that they can use on a yearly basis. They actually raised this this year which was an encouraging sign for Intuitive Surgical and they have since seen a 40% increase in systems installed in China alone year over year, so very high demand in China. .

Then they execute what they call their quadruple goal. Their quadruple goal in an elevator pitch is to cut costs for anyone involved in the healthcare system or undergoing surgery. Again, whether it’s hospitals, clients, etc. They have significantly reduced their instrument and accessory costs because they are introducing a new extended-use instrument. Essentially, they give the products a subscription basis, if you will, by saying that every time you use an intuitive system, you need an extra knife to cut through the system, XYZ, you name it. You need instruments and accessories to operate these surgical systems. They have therefore reduced all the prices of their old instruments and accessories and introduced new ones that have an extended lifespan. Rather than being, I think the maximum of their previous instruments was 10 use cases, and I think it’s now up to 12-18. They estimate it on average in the United States, where they did a study, that it will reduce their customer costs by 10 to 15%. Just a totally customer-obsessed business and if you think about it, if you’re a hospital you’re really, really going to stick with this supplier that keeps your costs down. Whether it’s reducing the cost of instruments and accessories, extending the use case, or the life of, should I say, surgery. Really encouraging signs across the board here and one final stat, quarter over quarter, a 13% jump in procedures. The procedures are really, really, if you were to look at a measure for this business, these are the procedures because they use the system, they use the instruments and the accessories and therefore generate revenue for the intuitive selling. Very encouraging.

Room: I want to highlight the da Vinci units sold on 320. This was about 80% higher than the year-over-year period, which makes sense. Hospitals weren’t doing as many procedures in the second trimester. It made no sense to replace or deploy new machines. This part of the business has turned around, which speaks volumes about the continued success of this product. It’s so sticky. Clay, you mentioned it. It’s not just for health care providers to cut costs, which is very important. But that’s what this generation of surgeons is trained on. This is how they perform surgeries. This in itself is a huge barrier to entry for any other business that would replace the da Vinci system in these hospitals. I don’t think we can overdo it enough. Also the razor and blade model is hundreds of thousands of dollars, it’s a six figure razor. They earn money by selling da Vinci robots. They make a lot of money on the robot. But they’re really making money selling those consumables, Clay, you were talking about there. I love it. He’s one of those under the radar winners that I’ve owned for a long time and I never really think about it and now he’s a big part of my portfolio. Nick, I know you like business too.

Nicolas Rossolillo: I agree with what you just said, Jason. It is a beautiful piece of healthcare that you can buy and just forget about. He’s going to do his job and he’s going to win consistently, I think, in the long run. In the short term, it’s still a rebounding game as well. They said in their last call for results that, particularly here in the United States and some other markets, they still face the impacts of the pandemic, especially since this delta variant is still going through some restrictions on surgeries. that take place in some areas. In the short term, it’s still a rebound, as the effects of the pandemic subside, and then, as Clay explained, it’s such a sticky product. It will not really be replaced once it is installed in a hospital or surgical center. There are so many procedures that can still benefit from some automation. They also entered the software business. At the beginning of last year, they bought this company, Orpheus Medical. I believe it’s called Orpheus Medical to help hospitals with their information systems, so besides robots, robotic surgery, just tons of options for this business.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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