This Could Send MAKO Surgical to New Highs

MAKO Surgical  (UNKNOWN: MAKO.DL  ) investors have to be feeling pretty good about themselves right about now. The stock has risen more than 23% so far this year, helped by an impressive 15% pop following its solid second-quarter earnings results in late July.

MAKO Total Return Price Chart

MAKO Total Return Price data by YCharts.

Of course, MAKO's rise seems a little less impressive when you consider it has only just barely outpaced the S&P 500's 20% gain so far in 2013, but it sure beats last year's dismal 49% drop, the result of two terrible earnings reports, spurred largely by lower-than-expected system sales.

As I wrote in July, however, it would seem the robotic surgery specialist is officially back on track after meeting analysts' expectations en route to its ultimate long-term goal of achieving sustained profitability. 

Since then, those in MAKO management have been surprisingly quiet, instead opting to keep their heads low and focus on executing their plans.

That was, at least, until Wednesday, when MAKO CEO Dr. Maurice Ferre made an appearance at Morgan Stanley's 2013 Global Heathcare Conference in his first official investor meeting since the J.P. Morgan Healthcare Conference in early January.

Here's what he said
Ferre started out by reiterating that the company is placing much of its focus on "execution in terms of creating better efficiencies," which, in turn should drive greater system utilization. Incidentally, that's something I suggested back in May could serve to drive huge returns for investors over the long run.

Potentially the most significant new bit of information, however, came a few minutes later, as Ferre touted the effectiveness of the company's new Hip 2.1 application and said, "I am pleased to announce that almost 25% of our business right now is hip."

And that, my fellow Fools, is a huge deal.

Remember, the number of total hip arthroplasty procedures last quarter grew 26% sequentially, and 106% year over year to 577. At the time, that represented only around 17.6% of the 3,274 overall procedures performed last quarter using MAKO's RIO Platform.

Let's run some numbers ...
So let's put together a quick guestimate for next quarter's procedure count, shall we?

MAKO management last quarter reiterated their existing 2013 guidance of 13,500 to 14,500 total procedures performed, and over the past three years company has seen an average of 24.4% of its yearly procedures performed in the third quarter. Last year, though, the third-quarter percentage was slightly lower at 23.65%, so let's use that as a more conservative estimate going forward. 

In theory, then, taking the midpoint of guidance gives us 14,000 total procedures in 2013, which means we should see approximately 3,311 procedures next quarter. That'd be a 1.1% sequential increase from last quarter's number, and a 37.2% gain over the same three-month period last year, an acceleration over Q2's 26% year-over-year procedure growth.

Meanwhile, taking 25% of that total yields around 828 hip procedures, or a more than 43% sequential increase over last quarter's 577, once again showing accelerating growth.

Of course, these are just rough estimates, and this also assumes THA procedures were at 25% of the total for the entire third quarter, where in reality we'll likely see a slightly lower hip number given the ramp up. But any way you slice the numbers, it's apparent hip procedures' influence is growing increasingly important to MAKO.

In fact, later in the Q&A portion of the conference, Ferre expressed renewed confidence the collective potential of MAKO's partial knee and hip procedures should be able to grow their monthly per site utilization from current levels around seven cases per month to closer to 10 by the end of 2014 -- a level he says represents "sustained profitability" for MAKO.

For reference, remember the massively profitable Intuitive Surgical (NASDAQ: ISRG  ) , which is MAKO's figurative cousin in robotic soft-tissue surgery, boasted monthly system utilization closer to 13 procedures during all of last year, thanks to the dozens of procedures surgeons can perform using its ground-breaking da Vinci robots. 

And while Intuitive Surgical is currently trading down more than 23% so far this year, thanks in part to weak capital spending in the U.S. last quarter -- a trend that incidentally didn't extend to the much smaller MAKO -- it's easy to forget even after that drop, Intuitive Surgical stock has risen more than 2,400% over the past decade.

Foolish takeaway
Down the road, then, as hip procedures continue to grow and when MAKO eventually rolls out additional applications, including, say, a total knee or shoulder solution, that's why I'm still convinced long-term investors stand to be handsomely rewarded for their patience.

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Read/Post Comments (8) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 14, 2013, at 11:18 AM, captainccs wrote:

    >>>The stock has risen more than 23% so far this year,

    The stock has fallen over 60% from the top it made last year.

  • Report this Comment On September 14, 2013, at 4:51 PM, TMFSymington wrote:

    @captainccs: And that's exactly why investors today should be excited!

    Of course, I'm certainly not claiming MAKO's valuation was completely justified at those levels last year, but you've got to admit today we're looking at a much healthier company.

    Fool on!

    Steve (TMFSymington)

  • Report this Comment On September 15, 2013, at 1:03 AM, BillFromNY wrote:

    I'm watching MAKO very carefully right now to see if I will pull the trigger. Watching MAKO is pretty easy here due to the many excellent articles and board posts.

    The company I believe said during the last conference call that RIO sales in the first half had been a little disappointing due in part to financial pressures on hospitals. But it was said that they still expected to meet their target number for the year.

    That requires them to sell more RIOs in the second half than they have done before. I'm waiting until I'm convinced that they succeed because I think a miss would be badly punished.

    If MAKO gets the full knee out there in the not too distant future, that would be a strong positive.

  • Report this Comment On September 16, 2013, at 1:04 PM, chris293 wrote:

    Up and down, down and up, that's why stocks are sometimes just like gambling until the stocks are seen for their real value. Let's hope the results are positive for the future. Past results are now headed in the right direction.

  • Report this Comment On September 19, 2013, at 4:11 PM, Dawgpac wrote:

    BillFromNY,

    MAKO recently said that they are not seeing any capital expenditure pullback from hospitals. To meet the low end of guidance they would need to sell exactly the same amount of RIOs in the 2nd half of this year as they did in the second half of last year (30). With the release of the latest hip software and the company reiterating guidance it sounds quite doable.

    D.

  • Report this Comment On September 25, 2013, at 10:53 AM, obga18 wrote:

    82% feels good after being beaten down for long time.

  • Report this Comment On September 25, 2013, at 11:36 AM, TMFOpie wrote:

    Steve, nice call on MAKO today and it's huge performance on the buyout by Stryker. And a nice bounce for both your Caps score and your own portfolio. Congrats.

    Andy

  • Report this Comment On September 25, 2013, at 12:08 PM, TMFSymington wrote:

    Thanks Andy. I'm happy about the gain, but torn at the same time given my excitement over MAKO's long-term potential. Apparently, though, Stryker was just as excited. (grin)

    Steve

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