Investment Thesis

Amid the coronavirus pandemic, shares of Intuitive Surgical (NASDAQ:ISRG) – a leading robotic surgery equipment manufacturer – have held relatively steady. I believe that the defensive nature of the company, technological maturity and strong financial position present a rare opportunity for investors to inexpensively buy the shares and profit from the industry’s long-term growth.

Corporate profile

Intuitive Surgical is a leading designer and manufacturer of equipment for robot-assisted surgeries. The company’s product and services portfolio has two key products – da Vinci robotic systems and Ion robotic systems. Through 2019, da Vinci products assisted in more than 7.2 million surgical procedures and spread over 67 countries. Originating from a “science fiction idea”, today the company employs more than 7,000 people.

Source: Intuitive Surgical Annual Report 2019

Key insights from the latest quarterly earnings call

Listening to the company’s latest earnings call and reading through the transcript, the management primarily discussed its position and state of operations in the context of the current coronavirus crisis. Even though a significant delay in the normal course of operations can be expected and patients “queuing up” and deferred surgeries might be a new daily picture, the overall outlook for the upcoming quarters remains optimistic and the CEO expressed his belief that the company will cope with existing market situation well.

I believe our long-term opportunity is substantial and our business is well-positioned financially and organizationally to weather this COVID outbreak. – Gary Guthart, Chief Executive Officer

A steadily expanding market

According to a report from Grand View Research, the robot-assisted surgical procedures market is expected to grow at a CAGR of 14.6 percent over an 11-year period from 2014 to 2025. Rapid technological advancements and a rise in spending on medical equipment by hospitals are expected to considerably boost image-guided and robot-assisted surgeries all across the world, particularly in developing economies such as Asia Pacific and Latin America. And this is a strongly favorable trend for companies such as Intuitive Surgical.


Financial analysis

From the perspective of financial statements, the company has a debt-free balance sheet with plenty of cash to cover any short-term commitments. The trailing twelve months’ current ratio momentarily stands at 4.5, which is an extraordinary figure even within the medical devices and technology industry. Lastly, the company has a track record of exceptional profitability with trailing twelve months’ ROE, a key profitability metric, exceeding 17 percent.


Plugging in Intuitive Surgical’s financial statement figures into my DCF template, the company’s shares show to be currently trading at their intrinsic value. Under the perpetuity growth method with a terminal growth rate of 2 percent, 17 percent annual revenue growth over the next five years and stable operating income margin of 30 percent assumptions, the model’s estimate of intrinsic value of the stock comes at 484 USD. Under the EBITDA multiple approach of a discounted cash flow model, the intrinsic value per-share value of the company stands roughly at 517 USD if we assume that the appropriate exit EV/EBITDA multiple in five years’ time is around 20x.

Source: Author’s own model

The bottom line

To sum up, Intuitive Surgical is a company with a slightly offensive business model (beta > 1) operating in a defensive healthcare sector. With unlevered capital structure and strong financial statements, I believe the company has a remarkable position to come out on top from the unfolding global economic slowdown and follow up on the robotic surgery equipment industry’s rapid growth, innovation pace and development. After all, the company has been a leader in this space, and currently there is no indication that this should change.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.