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Management revised it guidance for 2012 again. Total procedure count is expected to increase between 25%-27% in 2012. The prior guidance was for an increase in the 24%-26% ranges. Revenues are expected to increase 19%-21%. The prior guidance was for an increase in the 17%-19% ranges for 2012.

Reasons to be bullish on Intuitive Surgical Inc (ISRG)

  • Recurring revenues continue to grow as a proportion of total sales; they increased 30% in fiscal 2011 and accounted for 56% of total revenues during the year.
  • It operates in a niche market and has no direct competition; it acquired its only threat, Computer Motion in June 2003. It also sports operating margins of 39% and profit margins of 29%.
  • Net income has increased from $233 million in 2009 to $495 million in 2011.
  • A strong earnings growth rate of 37.8%.
  • Cash flow per share has almost doubled from $7.30 in 2009 to $13.89 in 2011.
  • A good revenue growth rate of 27.6%.
  • A very strong relative strength score of 92 out of a possible 100.
  • 5 year EPS growth rate of 37%.
  • A long-term debt to equity ratio of 0.00.
  • It has a very strong balance sheet; Cash and Cash Equivalents have increased from $221 million in 2009 to $465 million in 2011.
  • It has a good levered free cash flow of $ 521 million.
  • It has a five year sales growth average of 31%.
  • An estimated 3-5 year EPS growth rate of 19.54%.
  • Annual EPS before NRI has almost increased by over 200% from $3.70 in 2007 to $12.32 in 2011.
  • It sports excellent current and quick ratios of 4.58 and 4.22 respectively.
  • Cash flow from operating activities has increased from $392 million in 2009 to $677 million in 2011.
  • Operating income is projected to rise in the range of 39%-40%.


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Cons of owning Intuitive Surgical

  • It faces the potential threat of reduced capital spending by hospitals due austerity measures in Europe and concerns from the health care reform measures passed in the U.S. Austerity measures in Europe have also targeted hospitals and cut their capital spending programs. European customers are therefore more likely to purchase low end systems.
  • Its valuation could be an issue for many investors as its favorable growth prospects could already be priced in and thus the stock could be considered to be fairly valued at the present time.

Company: Intuitive Surgical


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Brief Overview

  1. 5 year sales growth rate = 31%
  2. Levered Free Cash Flow = 521.88M
  3. 5 year EPS growth rate = 37%
  4. Percentage Held by Insiders = 1.15
  5. Short Ratio = 4.8
  6. Relative Strength 52 weeks = 92
  7. Cash Flow 5-year Average = 6.72
  8. Profit Margin = 28.67%
  9. Operating Margin = 39.68%
  10. Quarterly Revenue Growth = 27.6%
  11. Quarterly Earnings Growth = 37.8%
  12. Operating Cash Flow = 738.70M
  13. Beta = 1.28
  14. Percentage Held by Institutions = 88.1%

Growth

  1. Net Income ($mil) 12/2011 = 495
  2. Net Income ($mil) 12/2010 = 382
  3. Net Income ($mil) 12/2009 = 233
  4. Net Income Reported Quarterly ($mil) = 144
  5. EBITDA ($mil) 12/2011 = 756
  6. EBITDA ($mil) 12/2010 = 613
  7. EBITDA ($mil) 12/2009 = 431
  8. Cash Flow ($/share) 12/2011 = 13.89
  9. Cash Flow ($/share) 12/2010 = 10.75
  10. Cash Flow ($/share) 12/2009 = 7.3
  11. Sales ($mil) 12/2011 = 1757
  12. Sales ($mil) 12/2010 = 1413
  13. Sales ($mil) 12/2009 = 1052
  14. Annual EPS before NRI 12/2007 = 3.7
  15. Annual EPS before NRI 12/2008 = 5.12
  16. Annual EPS before NRI 12/2009 = 6.23
  17. Annual EPS before NRI 12/2010 = 9.47
  18. Annual EPS before NRI 12/2011 = 12.32


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Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 19.54
  2. Current Ratio = 4.58
  3. Current Ratio 5 Year Average = 4.67
  4. Quick Ratio = 4.22
  5. Cash Ratio = 3.3

Conclusion

It has had a tremendous run in the past two years, and one could argue that its future growth prospects are already priced in the stock. From a value angle, it would make sense to wait for a stronger pullback or at least a retest of the 500 ranges before committing new money to this play.

The ideal point of entry would be to try to get in the 450 ranges. It has a lot of support in this zone. It is a good play, but with a P/E of 40 and a forward P/E of 31, one could argue that they are better plays out there. Again, we are not stating that this is not a good play, but it has jumped from $250 to almost $600 in two years. Hence waiting for a strong pullback could be the prudent line of action to take. An alternative would be to sell puts at strikes you would not mind owning the stock at. The benefit of this strategy is that you have the opportunity to get into this stock at a price of your choosing or at least get paid for trying to.

EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical/research data used in this article was obtained from zacks.com.

Disclaimer: It is imperative that you do your due diligence and then determine if the above play meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Source: Intuitive Surgical Inc: Time To Buy, Hold Or Wait?