Foolish Forecast: Intuitive Surgical Is Worth Every Penny

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"Human hands, so frail and fragile
Humbled by robotic rods.
Still the sense that guides the gadget
Resides in a human head."

-- "Robot-assisted Surgery, Explained," by Anders Bylund in viking-style Fornydislag verse

Robotic surgery sounds like science fiction, but Intuitive Surgical (Nasdaq: ISRG) is selling equipment to do it today. Check out how this highflier fared last quarter, and then come back for a refreshed outlook. It's exactly what the doctor ordered.

What Fools say:
Here's how Intuitive Surgical's CAPS rating stacks up against some of its peers in the medical instruments sector:

	Market Cap (billions)	Trailing P/E Ratio	CAPS Rating (out of 5)
Medtronic (NYSE: MDT)	$55.1	25.3	*****
Stryker (NYSE: SYK)	$25.8	26.5	*****
St. Jude Medical (NYSE: STJ)	$15.1	27.6	*****
Intuitive Surgical	$13.1	110.3	****
Hologic (Nasdaq: HOLX)	$6.7	N/A	*****

Data taken from Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS on April 16.

It's an august crowd indeed when Intuitive's four-star rating stands out as the worst of the bunch. Still, our CAPS players have plenty of nice things to say about the company, praising the medical advantages of robot-assisted surgery and the fact that nobody else can enter this niche. The only negative points brought out by the bearish platoon focus on valuation, and how such a small company cannot possibly be worth $13 billion.

What management does:
The cash flow margin passed net income margin a few quarters ago and seems intent on staying ahead. You know how we Fools love our free cash flow. I'd also like to highlight how margins are expanding across the board, because the growing base of installed systems requires exponentially more of the high-margin disposable supplies. Thanks for the handle-and-blades idea, Gillette.

Margins	9/2006	12/2006	3/2007	6/2007	9/2007	12/2007
Gross	66.7%	66.5%	66.6%	66.5%	67.6%	69%
Operating	28.7%	28.8%	29.4%	30.7%	32.2%	34.7%
Net	29.5%	19.3%	19.9%	20.6%	22.7%	24.1%
FCF/Revenue	18.5%	22.5%	24.8%	26.9%	25.7%	30.9%

Growth (YOY)	9/2006	12/2006	3/2007	6/2007	9/2007	12/2007
Revenue	65.7%	63.9%	55.8%	55.7%	57.7%	61.2%
Earnings	74%	(23.5%)	(18.2%)	(5.9%)	21.5%	100.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Intuitive is the best-performing stock in my own portfolio, nearly quadrupling in two short years. It's also a stock that lets me feel good about lending some minuscule support to the business -- if there's ever a scalpel anywhere near my prostate, it had better be attached to one of these robotic arms.

I don't think that economic recessions would have much of an effect on this company. After all, you don't stop going to the hospital just because the dollar is weak, and there's so much growth left in this revolutionary system. There are more than 6,000 hospitals in the U.S. alone, but there are only about 795 da Vinci systems installed worldwide today.

As much as I'd enjoy bad news and a temporary pullback on this expensive stock, color me surprised if it happens this evening. I'm in for the long haul either way.

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