Intuitive Surgical, Inc. and Nike, Inc. received positive upgrades from analysts recently. In this article, both companies will be analyzed fundamentally and technically. Options strategies will also be reviewed.
Intuitive Surgical, Inc.
Intuitive Surgical, Inc. (ISRG) designs, manufactures and markets da Vinci Surgical systems and related instruments and accessories. The da Vinci system allows a surgeon to control up to three endoscopic instruments from a remote console while a dual camera provides a 3-D view of the operation. ISRG was up 2.28% and closed at $574.05 on February 22, 2013. ISRG had been trading in the range of $467.26-$594.89 in the past 52 weeks. ISRG has a beta of 1.56.
On February 22, 2013, Goldman Sachs upgraded ISRG from Neutral to Buy with a price target of $715.00 (from $591.00), suggesting 28% upside. Goldman Sachs commented,
"Recent results as well as our own due diligence confirm that surgical robotics is evolving into a platform technology with several new procedure categories gaining traction. As the company sees increased uptake in these procedures, we see the revenue trajectory as sustainable in the +18%-20% range annually whereas consensus estimates call for a slowing in outer years." The firm also said that the combination of solid revenue growth and the potential for the company to more aggressively deploy capital should share price outperformance.
Analysts have an overall Buy rating with an average price target of $609.14 (6.1% upside potential) for ISRG.
There are a few positive factors for ISRG:
- Stronger revenue growth (3 year average) of 10.6 (vs. the industry average of 2.8)
- Higher operating margin of 40.3% and net margin of 30.1 (vs. the averages of 15.9% and 11.6%)
- Stronger ROE of 21.1 (vs. the average of 13.4)
- ISRG has zero total debt and has a total cash of $1.32B
- ISRG generates an operating cash flow of $814.20M with a levered free cash flow of $567.81M
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, but the MACD difference converged in the last trading day. The momentum indicator, RSI (14), is picking up and indicating a bullish lean at 57.23. ISRG is currently trading above its 50-day MA of $537.32 and 200-day MA of $525.49. The next resistance is $609.95, the R1 pivot point, and $645.53, the R2 pivot point, as seen from the chart below.
Investors can review our previous credit short put position of April 20, 2013 $460/$480 put in our last article of "Intuitive Surgical Is Surging With Fundamental Supports". For the new position, investors can review credit short put play of April 20, 2013 $480/$500 put.
Nike, Inc. (NKE), a component of the S&P 500, is the world's largest designer and wholesaler of athletic footwear and apparel. The company mainly engages in designing, developing and worldwide marketing of high quality footwear, apparel, equipment, and accessory products. NKE was down 0.13% and closed at $54.47 on February 22, 2013. NKE has been trading in the range of $42.55-$57.40 in the past 52 weeks. NKE has a low beta of 0.86.
On February 21, 2013, Citi upgraded NKE from Neutral to Buy with a price target of $62.00 (from $51.00) and cited the stabilized trends in China and signs of improvements in Europe. On February 11, 2013, Wedbush initiated coverage on NKE with a Neutral rating and $56 price target. Analyst Corinna Freedman indicated that the current valuation is fair and reflective of the company's dominate market share. However, the analyst is cautious on the 2nd-half of 2013 due to tough comps and backend-weighted gross margin expectations. Near-term concerns about running comps are offset by basketball strength. On the same day, JPMorgan upgraded NKE from Neutral to Overweight and boosted its price target 28 percent to $64. JPMorgan reported,
"Amid slowdown in China, JPMorgan still sees opportunity in the market along with new potential in Nike's Flyknit line. The firm is modeling high-single-digit revs growth over the next three-year time frame. Taking a step back, the pipeline is robust with Free "on fire" ($1B+ w/ 50% of biz now outside of running) and Lunar ($0 to $1B line from 2008-2012) the roadmap for Flyknit ('12 launch w/ increased Spring distribution). Women will be key in apparel, having under five percent market share today with the NFL also representing a large opportunity. E-Commerce still remains underpenetrated, accounting for just about two to three percent of sales today with outsized growth (39 percent-plus) over the next three to five years."
There are a few positive factors for NKE:
- Stronger revenue growth (3 year average) of 8.0 (vs. the industry average of 5.4)
- Higher operating margin of 11.8% (vs. the average of 10.9%)
- Stronger ROE of 20.8 (vs. the average of 19.0)
- Lower Forward P/E of 13.8 (vs. the S&P 500's average of 14.0)
- NKE has a total cash of $3.52B with a total debt of $328M
- NKE has an operating cash flow of $2.55B with a levered free cash flow of $1.60B
- NKE currently offers an annual dividend yield of 1.54%
Technically, the MACD (12, 26, 9) is showing a bearish trend. RSI (14) is showing a slightly bullish lean at 55.35. NKE is currently trading above its 50-day MA of $52.82 and 200-day MA of $49.60. The next resistance is $55.95, the R1 pivot point, followed by $57.94, the R2 pivot point, as seen from the chart below.
Investors can review our last reviewed credit put options position of April 20, 2013 $42.5/$45 put in our last article of "Nike A Long-Term Buy, But At High-End Of Its Valuation". For the new position, investors can review credit short put play of April 20, 2013 $47.5/$50 put.
In short, both stocks are great long-term holdings with a healthy balance sheet, strong cash flow, and stable growth. By leveraging options, investors can acquire stocks at a lower price or gain upside credit premium as reviewed.
Note: All prices are quoted from the closing of February 22, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ISRG over the next 72 hours.