Intuitive Surgical Remains A Hidden Gem

Mar.30.12 | About: Intuitive Surgical, (ISRG)

Beyond Trading upgraded Intuitive Surgical (ISRG) to Strong Buy at $98 in 2009.

In 2009 it was published an article on SeekingAlpha naming this company a Hidden Gem. We have maintained our long-term view on the stock since then reiterating several times the Strong Buy rating on the stock, being the most recent in 2010 at $249.

In our opinion there is only company in the stock market that can be comparable to Intuitive Surgical , being that company Apple.

The consistency of past earnings and cash flow

Over the past four years, Intuitive Surgical has put up past EPS growth rates of 45.5%. Meanwhile, Wall Street's analysts expect future growth rates of 21.1%, too low in our opinion based on historical execution.

Income Data

2008

2009

2010

2011

Net Sales

$874.9

$1,052.2

$1,413.0

$1,757.3

Gross Profit

$620.8

$751.1

$1,030.0

$1,273.8

Operating Income

$310.8

$377.4

$555.2

$694.8

Net Income

$204.3

$232.6

$381.8

$495.1

EPS

$5.12

$5.93

$9.47

$12.32

Click to enlarge

Over the last four years, Intuitive Surgical has tallied up four years of positive earnings and four years of positive free cash flow.

Going forward, we are increasing our upside on the stock ahead of earnings to $630

This projection it is justified by the extraordinary company execution in terms of EPS and consistent growth.

Our estimate is based on earnings of $17 per share in 2013 and a PE of 36, therefore we do not consider Intuitive Surgical a rather expensive stock.

Quite on the contrary we are being conservative.

Risk analysis

While most analysts have maintained a bearish prognosis on the stock namely Goldman Sachs in 2010 issue a Sell rating, it is our opinion the worst case scenario to be $390 long term, a price well above Goldman Sachs worst estimates, confirming our view it has been a rewarding experience remaining investors on this great company.

We are talking about a company, which is virtually debt free, +70% gross margins, 30% net margin and above all it has been completely neglected by Wall Street unlike Apple (NASDAQ:AAPL).

Intuitive Surgical performance over the past years it can constitute a surprise only to short sellers including Wall Street.

Long term: a potential stock split

We consider the possibility of a potential stock split in 2013-2014. In this case, according to our analysis it remains worth to maintain an investment in Intuitive Surgical since this to materialize, the ratio upside/downside on the stock would be within the range $730/390

Going into 2014, our estimates are for earnings of $18.5

Disclosure: I am long ISRG.