Intuitive Surgical Is Taking Cues From Warren Buffett

With disappointing revenue already announced, it seemed that Intuitive Surgical's (Nasdaq: ISRG  ) stock price action today depended more on what CEO Lonnie Smith said on the conference call than what was in the press release.

And I'll bet he could have cared less. This is, after all, the guy who told an analyst on last quarter's call, "If you're buying this stock for the next quarter, don't." With that kind of long-term thinking, I'm pretty sure he could get a job at The Fool, should he ever want to quit his day job.

Management is expecting revenue this year to go up 15%, but you'd have to guess that it's being conservative, given the previous annihilations of its guidance. Even this year, when things fell apart in the last quarter, it still beat the growth it was predicting at the beginning of the year.

 

Revenue guidance increase over prior year

Actual increase in revenue

2005

20%-30%

64%

2006

25%-35%

64%

2007

35%

61%

2008

40%

46%

2009

15%

??

Source: Company press releases and year-end earnings conference calls.

The installed base, which now sits at 1,111 da Vinci systems, is driving sales. The disposable instruments and service contracts now contribute more than half of revenue. Razor blade! Sales of da Vinci systems are expected to be flat this year as hospitals are expected to tighten up capital spending. Companies from tiny Natus Medical (Nasdaq: BABY  ) to larger Hologic (Nasdaq: HOLX  ) have reported similar slowdowns in spending from hospitals.

While revenue is projected to grow at 15% this year, the bottom-line earnings per share are only expected to grow 5% year over year. Part of that discrepancy is because the company is unwilling to cut back on research and development expenses during the downturn -- there's that long-term thinking again.

Even with the paltry projected growth, the multiple Rule Breakers pick looks like a good long-term investment at less than 18 times projected earnings. Sure, you can have other medical-device makers -- Medtronic (NYSE: MDT  ) , Stryker (NYSE: SYK  ) , Zimmer (NYSE: ZMH  ) , and Kinetic Concepts (NYSE: KCI  ) for instance -- for less, but when was the last time any of them had 50% organic revenue growth?

Either investors think robotic surgery is dead and that 50% growth will never be seen again, or they're being short-sighted. My guess is that it's the latter, and investors who can look further than the tips of their noses should be able to make astonishing profits when things return more to normal.

Find out why David Gardner and his team have recommended Intuitive Surgical multiple times for the Rule Breakers newsletter. Click here to see all of our latest discoveries with a free 30-day trial subscription.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Natus Medical is a Motley Fool Hidden Gems pick. The Fool owns shares of Stryker and Kinetic Concepts. The Fool has a disclosure policy.


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  • Report this Comment On January 23, 2009, at 4:11 PM, PauvrePapillon wrote:

    "If you're buying this stock for the next quarter, don't."

    I didn't listen to the CC so I can't say for sure that this quote is accurate... but if it is...

    the only proper response for any shareholder in the room (including the CFO) would have been to bitchslap the CEO who said it.

    It's fine to talk about the long term and even the challenges of the short term but you don't trash anyone who wants to place a long bet on your company. It's irresponsible. It's unprofessional. It might by some even be considered a breach of fiduciary duty to the shareholders.

    Some ISRG shareholder is going to face some personal situation next quarter that is going to require them to sell a few shares. Why sabotage their chances at getting a decent price. A CEO level executive should have better sense. Really.

  • Report this Comment On January 24, 2009, at 12:28 AM, CrankyTexan wrote:

    <<<< Some ISRG shareholder is going to face some personal situation next quarter that is going to require them to sell a few shares. Why sabotage their chances at getting a decent price. A CEO level executive should have better sense. Really. >>>>

    Umm, anyone who might need to withdraw money next quarter should not have that money in stocks in the first place. Really.

  • Report this Comment On January 24, 2009, at 2:13 PM, wuff3t wrote:

    "It's fine to talk about the long term and even the challenges of the short term but you don't trash anyone who wants to place a long bet on your company..."

    He wasn't, was he? He was in fact trying to say that ISRG is a good bet for the long-term, but not the short-term. He seemed to be trying to engender a sensible, long-term perspective on the company's future. That's exactly the sort of CEO I want running the companies I invest in.

  • Report this Comment On January 25, 2009, at 6:08 PM, rmiers1 wrote:

    I listen to every CC with commonsense interpretation and I did not hear Lonnie with any negatives (with exception of this worldwide financial crisis) What I did hear was that ISRG's future was on a "case by case" basis and that it was growing nicely. It doesn't take a M.I.T. graduate to figure out future profits regardless of stock price. I loved (and hated) an yahoo ISRG poster touting the stock going to 50. I loved the idea of buying back half of the outstanding stock and hated the fact that Yahoo does such a poor police policy on bizarre posters. I makes our yahoo message board the laughing stock of the internet.

    That said, even in a no growth or 2008 sales figure gives us enormous growth and profits both in machine sales and the delayed timing of parts and service. The last time we gave 20% projected increases turned out 64%. They answered all questions honestly and prudently and I for one am waiting for a botched open patient to sue the shorts off a healthcare provider who did not tell the whole robotic story prior to treatment. Wouldn't it be a hoot to have to shutter your OR because of out of date equipment???

    The plaintive lawyers have just won the white house and health care should get it's house in order. That includes infection rate, length of stay, pain, total cost,outcomes and patient satisfaction.

    I only bring up the legal issues because of two unrelated class action lawsuits I was invited to participate in just this week (I will not) but I sympathize with cardiac, PC and OBGYN folks who do not get the best treatment possible. Or at least, the honest explanations of all available treatments.

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