It's not even a close contest. In recent years, Intuitive Surgical (ISRG 1.17%) has trounced Medtronic (MDT 0.25%) in stock performance, revenue growth, and earnings growth. But so far in 2019, Medtronic has delivered slightly higher stock gains than Intuitive.
Which of these stocks is the better pick for investors now? The past track records don't matter nearly as much as what could lie ahead for the two companies. Here's how Intuitive Surgical and Medtronic stack up against each other.
The case for Intuitive Surgical
Intuitive Surgical claims one of the best business models that I've ever seen. The company sells (or leases) its robotic surgical systems. It provides services to train users on the systems and to maintain the systems. Intuitive also sells replacement instruments and accessories.
This is actually a modern variation on the old "razor-and-blades" business model. And it works very well for Intuitive Surgical. Over 70% of its total revenue is recurring. Every new system it sells or leases ensures that even more recurring revenue is on the way.
Intuitive reported year-over-year procedure growth of 20% in the third quarter -- tied for the best quarterly performance over the last six years. This reflects a higher number of da Vinci robotic surgical systems install base than ever before. It also results from customers using their systems more frequently and for more types of procedures to maximize their return on investment.
Increasingly more customers are opting to lease Intuitive's da Vinci systems. Although this trend lowers Intuitive's upfront revenue, it boosts recurring revenue over the long term, ultimately making the company even more money.
Aging populations across the world also benefit Intuitive Surgical. Demographic changes should drive growth in several types of surgical procedures, including prostatectomies, that are among the top ones for which da Vinci is used.
Intuitive isn't resting on its laurels and just riding its recurring revenue stream, though. The company continues to innovate, launching its new ION system for minimally invasive lung biopsy and continual improvements for the da Vinci system. These innovations should increase the numbers of procedures performed by its systems over the long run -- and fuel even more recurring revenue growth.
The case for Medtronic
Probably the best argument for buying Medtronic stock is the company's broad scope of operations. Medtronic ranks as the third largest medical device stock on the market, marketing a wide lineup of devices in multiple therapeutic areas.
Medtronic's biggest moneymaker is its cardiac and vascular group. This segment raked in over $2.8 billion in the third quarter. Its products include aortic valves, pacemakers, defibrillators, and stent grafts.
Two other business segments aren't too far behind in sales. Medtronic's restorative therapies group and minimally invasive therapies group generated over $2.1 billion in Q3, and both continue to grow sales by single-digit percentages year over year.
The company's diabetes segment is significantly smaller and faces intense competition in the U.S. However, this segment continues to perform well in international markets. In addition, Medtronic plans to launch new diabetes products that should boost growth. The most important of these anticipated new product launches is the MiniMed 780G, the company's advanced hybrid closed-loop insulin pump system with Bluetooth connectivity.
It's not just the diabetes segment that's launching new products that should drive growth, though. The cardiac and vascular group expects to soon introduce its Mitra AV pacemaker along with several other new products. The company's minimally invasive therapies group is preparing to launch the Hugo robotic-assisted surgery system which will compete directly against Intuitive Surgical's da Vinci system.
In addition to its growing lineup of medical devices that should increase Medtronic's revenue and earnings, the company offers a dividend that yields a little under 2%. Medtronic belongs to the elite group of stocks known as Dividend Aristocrats and has increased its dividend for 42 consecutive years.
While Medtronic is a stable dividend stock with solid growth prospects, I think that Intuitive Surgical is the better pick. My view is that Intuitive's business model makes the company a revenue-generating machine.
What about the threat from competition, including Medtronic's new robotic surgical system? I'm not worried. Intuitive Surgical's huge install base, long track record, and continual innovation give the company a pretty good moat, in my opinion. I suspect that new rivals on the scene will actually help Intuitive by expanding the overall adoption of robotic surgery.
There are risks with buying any stock, but I like the prospects for Intuitive Surgical.