What happened
Shares of Intuitive Surgical (ISRG +0.72%), the leading developer and manufacturer of minimally invasive robotic surgical systems, surged 9% in April, according to data from S&P Global Market Intelligence. On a valuation basis, that works out to $2.6 billion in market cap added, pushing Intuitive Surgical well above the $30 billion mark. The reason behind the strong move higher can be traced to the release of Intuitive Surgical's first-quarter earnings results on April 18.
So what
For the quarter, Intuitive Surgical announced that worldwide procedures grew by nearly 18%, with U.S. general surgery procedures and worldwide urology procedures leading the way.
Image source: Intuitive Surgical.
Sales wound up increasing 13% year on year to $674 million, with revenue up across all operating segments. Systems revenue was the slowest-growing segment, with 133 da Vinci systems shipping in Q1 2017, as opposed to 110 in Q1 2016, leading to 4% sales growth. Making up for this slower growth was its bread-and-butter instrument and accessories revenue, which increased 18% to $381 million. Service revenue also improved 13% to $140 million. Comparably, Wall Street had anticipated only $665 million in quarterly sales.
In terms of its bottom line, Intuitive Surgical delivered 15% adjusted net income growth to $196 million, translating to $5.09 in EPS, up from $4.42 in EPS a year earlier. Wall Street's consensus had called for $4.98 in EPS, meaning the company surpassed estimates by $0.11 per share. This marked the eighth straight quarter that Intuitive Surgical handily topped the consensus EPS estimate.
And that wasn't the end of it. In addition to delivering stellar Q1 results, Intuitive Surgical upped its full-year procedure growth to a range of 12% to 14% from its prior view of 9% to 12%. It would appear the company's push to get its robotic-assisted surgical systems into the more general surgery setting in the U.S. is beginning to pay off.
Now what
What we have with Intuitive Surgical is a clear competitive advantage and a razor-and-blades model that simply can't be matched.
Image source: Getty Images.
To begin with, you could add all of Intuitive Surgical's competitors together and their combined network of robotic surgical systems would hardly even be a blip next to the number of da Vinci surgical systems in place around the world. It takes a long time to train surgeons and build rapport with the medical community both domestically and abroad. In this respect, Intuitive Surgical is light years ahead of its competition, and it's likely to remain well ahead for many years to come.
Beyond this enormous competitive advantage, Intuitive Surgical's business model suggests that its margin is only going to improve over time, not deteriorate. You might be of the impression that its da Vinci surgical systems (the razor), which average around $1.5 million in price, are where the company makes its profits, but you'd be dead wrong. Instruments, accessories, and service revenue (the blades) are a high-margin recurring business for the company. As even more systems get put in place, the company's margin could improve.
Intuitive Surgical is no longer the bargain it was at the beginning of the year, but if it can continue to infiltrate the general surgery market and grow sales by 10% annually, there's no telling how high its share price could head over the long run.
