The robotic surgery market is growing fast at 12.6% CAGR. The most well known growth story is Intuitive Surgical (ISRG). This company was practically unknown till 15 years ago and today it is the world's leading robotic surgery solution provider with over $2b in annual revenues.
At first we wanted to buy Intuitive Surgical. However, its price-to-earnings (P/E) ratio is 45 and the annual growth is just around 6%. We find it too expensive right now. We think that the revenue growth should be much higher to justify the current share price at $506.
Figure 1. (Source)
We think that Intuitive Surgical is a great company. Their da Vinci equipment has been used in 1.5m surgeries worldwide.
What other robotic surgery companies could we then consider? In this article, we will talk about Mazor Robotics (MZOR).
Mazor Robotics is still quite unknown to a large audience, like Intuitive Surgical was 15 years ago.
Mazor Robotics is an Israel-based company with over 140 employees.
Its computerized and imaging-based surgical guidance system called Renaissance focuses on two key markets:
Please note that Mazor Robotics' Renaissance system has obtained FDA approval and CE-marking. It is being commercialized in the US, Europe, Russia, Far East Asia and Asia Pacific.
Let's have a look on the installed base and revenue growth:
Figure 2. (Source)
Figure 3. (Source is same as for Fig. 2)
Net Present Value Assumptions - Mazor Robotics
Now many investors could ask the question: is Mazor Robotics a good investment opportunity?
We have analyzed the potential revenue growth based on the total market size.
The key assumptions are:
NPV assessment results
We note that Mazor Robotics is currently trading at $11.25, that is very close to our NPV assessment fair value result.
To be more precise, one should consider as well the current cash ($52.2m in December 2014) and the intellectual property for the share price evaluation. The cash alone ($52.2m) would be equal to $2.5 per share, in addition to our NPV result of $11.54.
Justifications for our NPV and 5-year estimates
Here are a few facts that we consider essential to justify our valuation model:
Figure 4. NPV and share price estimate (Source: by Author).
Figure 5. NPV assessment results. Brain surgery revenues are excluded from this forecast. (Source: by Author)
Mazor Robotics is among the first entrants in the thoracic lumbar surgery market. We think that the competition will show up progressively.
Speaking of the new entrants; even Google (GOOG) (GOOGL) is now entering into the robotic surgery market through a collaboration deal with J&J (JNJ). No wonder, the profits in this industry could be high and the market sizes could grow much further. Already today healthcare accounts for 20% of the annual GDP of the United States.
We already mentioned Intuitive Surgical and their over $2b annual sales. This great company will face more competition including a few small companies that might become the big ones one day.
Titan Medical (OTCQX:TITXF) and TransEnterix (TRXC) are still in the development phase with their surgical applications. Transenterix will likely not compete with Mazor Robotics directly - at least for now - but could become a rival in the long run.
Medtech is a key competitor for Mazor Robotics. Medtech is trading under ticker ROSA in Euronext Paris. The analysts expect that Medtech sales revenue is progressing fast to reach over $30m in 2017. It is primarily focusing in the brain surgery field. We have excluded all brain surgery related revenues from our NPV model established for Mazor Robotics; perhaps we were too conservative here.
Here are some of the risks that the potential investors should consider:
Currently Mazor Robotics' share price is trading close to the fair value based on our NPV assessment. We think that there is a lot more good news to come from Mazor Robotics as it just started its journey in the robotic surgery with two first applications approved and commercialized.
Mazor Robotics has likely enough cash to continue its operations for several quarters and years ahead. As of December 2014, it had $52.2m of cash, cash equivalents and investments. Its total loss in 2014 was just $15.3 and with the sales going up this could be reduced in 2015. It has already built up a significant sales staff of around 57 executives.
We think that Mazor Robotics is a better buy today than its rival Intuitive Surgical based on the fundamental share price valuations and revenue growth rates.
MZOR data by YCharts
Mazor Robotics could be a good long-term investment for those able to hold the shares for over 5 years. We expect that the share price will reach a value between $30 and $40 within the next 5 years.
For those who invested in the robotic surgery field, with above stocks, back in mid-2013 have been greatly rewarded. We think that this trend will continue.
Disclaimer: Please do your own research prior to investing and taking investment decisions. This article is provided for informal purposes only and any information mentioned may change at any time without a notice. Please consult your investment advisor for finding a proper allocation for your portfolio that is adjusted with your risk levels and personal situation.
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This article was written by
Disclosure: The author is long MZOR, TRXC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.