Foolish Forecast: Robots on the Cheap

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Intuitive Surgical (Nasdaq: ISRG) releases earnings in a few hours. Here are some premonitions to tide you over as you anxiously wait the news.

What analysts say:

• Buy, sell, or waffle? Despite -- or maybe because of -- the recent stock price drop, analysts still like what they see in Intuitive Surgical, with buy calls outnumbering holds 8 to 3.
• Revenue. Sales of robots, accessories, and service contracts are expected to grow 44% this quarter to $227 million.
• Earnings. Analysts are looking for earnings per share of $1.27, just 22% higher than the year-ago quarter. If you're wondering why the top-line growth isn't trickling down to the bottom line, you're not alone. Then again, analysts haven't exactly been accurate at predicting Intuitive Surgical's earnings -- often underestimating them by 10%-20%.

What management says:
What management hasn't said might be the most noteworthy thing about today's announcement. The only press release the company has issued since last quarter's earnings release simply announced the date for this evening's event. The lack of a preannouncement of an earnings miss from a management as translucent as Intuitive Surgical's should give investors confidence that the company will at least meet its guidance.

What management does:
Am I the only one who gets giddy when I see ever-increasing margins? They're like a Fool's dream, and Intuitive Surgical has all its bases covered. Its new manufacturing plant in Mexico seems to be putting a drag on free cash flow relative to revenue, but I imagine the company will be able to bring that ratio back up as it grows into its new capacity.

Margins	3/2007	6/2007	9/2007	12/2007	3/2008	6/2008
Gross	66.6%	66.5%	67.6%	69.0%	69.3%	70.3%
Operating	29.3%	30.4%	32.2%	34.7%	35.5%	36.1%
Net	19.9%	20.6%	22.7%	24.1%	24.5%	24.7%
FCF/Revenue	24.8%	26.9%	25.7%	30.9%	27.7%	22.6%

Revenue growth can't continue forever. Eventually, every hospital in the world will have a daVinci system, and sales will begin to slow. Fortunately, that time seems to be well in the future.

Growth (YOY)	3/2007	6/2007	9/2007	12/2007	3/2008	6/2008
Revenue	55.8%	55.7%	57.7%	61.2%	64.7%	62.8%

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 Surgical's stock has dropped precipitously over the last quarter. With a P/E north of 40, it may still look expensive, especially in this market. But can other medical device companies really provide the growth that Intuitive Surgical can?

Company	Revenue Growth (TTM)	Trailing P/E Ratio	CAPS Rating (5 max)
Intuitive Surgical	62.8%	40.6	****
Medtronic (NYSE: MDT)	12.5%	20.1	****
Boston Scientific (NYSE: BSX)	0.3%	NM	***
Stryker (NYSE: SYK)	17.0%	20.3	*****
Stereotaxis (Nasdaq: STXS)	3.5%	NM	**

Data courtesy of Capital IQ and Motley Fool Caps. TTM = trailing 12 months. NM = not meaningful.

With sales ramping up in China -- its distributor Chindex (Nasdaq: CHDX) has already sold at least one system -- Intuitive Surgical's expansion seems far from over. I doubt that a global slowdown will keep China from trying to raise its standard of living for its inhabitants, and that means more high-tech devices for its hospitals.

There's some worry that hospitals around the globe may not be able to get the credit needed to make the purchases, but it shouldn't be too great a concern. If its customers want a robot, as they have in the past, they'll find a way to pay for it. And if worst comes to worst, Intuitive Surgical can use some of its $340 million in cash and short-term investments to extend credit to hospitals that need it.

Now may be the perfect time to pounce on Intuitive Surgical.