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Should You Buy Intuitive Surgical in March?

By Adria Cimino - Mar 13, 2021 at 8:00AM

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Investors (and patients) are already benefiting from the company's futuristic technology.

Every 30 seconds, a surgeon uses Intuitive Surgical's (ISRG 2.62%) flagship system to perform surgery on a patient. If you've had a common procedure such as hernia surgery in recent years, you may have been one of those patients. Surgeons worldwide use the company's Da Vinci robotic system for general surgery, gynecology, urology, and other specialties.

Over time, Intuitive Surgical has expanded its reach into hospitals, and revenue and profit have benefited. Stock performance has reflected the company's leadership position. It's climbed gradually -- and last year, the stock reached an all-time high. Since then, though, the shares have taken a break, slipping about 14% so far this year.

Now we might ask ourselves: Are the big gains over? Or is this a buying opportunity? Let's find out.

A surgeon performs surgery with the assistance of a robotic system.

Image source: Getty Images.

A $2 million system

Intuitive Surgical generates revenue by selling robotic systems, instruments and accessories, and services to hospitals. Though the Da Vinci system costs hospitals about $2 million, Intuitive Surgical actually makes most of its revenue from the sale of instruments and services.

Annual profit and revenue have generally gained since 2015.

ISRG Net Income (Annual) Chart

ISRG Net Income (Annual) data by YCharts.

And profit margin also generally was on the rise -- until the coronavirus pandemic.

ISRG Profit Margin Chart

ISRG Profit Margin data by YCharts.

The health crisis hurt Intuitive Surgical for two main reasons. First, hospitals worldwide postponed many nonessential surgeries. And second, they focused more on handling the coronavirus outbreak than on buying new robotic surgery systems.

As a result, 2020 revenue and net income declined 2.7% and 23%, respectively, year over year. The company installed 936 systems last year, down from 1,119 installs in the prior year.

The pace of recovery

The rollout of coronavirus vaccines worldwide should help to eventually stop the pandemic, and that's great news for Intuitive Surgical. But complete recovery probably won't happen overnight.

Due to the pandemic, diagnostics of other conditions were delayed, and that means surgical procedures to treat the conditions were delayed, too. Intuitive Surgical said in its recent earnings call that it will take "several quarters" to catch up.

These delays also may translate into fewer new system installs because hospitals usually try to use up capacity before making new investments. And Intuitive Surgical notes one more headwind: After the coronavirus pandemic, some countries' healthcare systems may be stretched to the maximum. That means they might not have money to invest in robotic surgery.

It's likely we'll have to be patient as we examine Intuitive Surgical's earnings reports in the coming quarters. But even if recovery takes time, I'm not worried because the coronavirus pandemic and aftermath are temporary. Hospitals will return to business as usual once they get through the crisis and catch up on delayed procedures.

Here are the positives

There are positives that worked in Intuitive Surgical's favor in the past and will continue to do so. First, there's its leadership. The company holds more than 80% of the robotic surgery market, according to a report from Informa Pharma Intelligence. Intuitive Surgical has installed nearly 6,000 Da Vinci systems worldwide.

Second, there's the idea of being a leader in a pretty big market. The surgical robotics market will reach nearly $6.9 billion by 2026, predicts Fortune Business Insights. That's up from $1.5 billion in 2018.

Another positive: The regulatory environment is helping Intuitive Surgical stay ahead. Regulators in the U.S. and Europe now require more data than in the past before clearing a new product. And timelines for clearance have become longer. This benefits leader Intuitive Surgical as it takes a while for rival products to enter the market.

I expect all of these positives to boost Intuitive Surgical's profit and revenue -- once the coronavirus storm has passed. We should expect improvement in profit margin, too, as normal business resumes. And share-price gains likely will follow. Right now, the stock is trading at its lowest in about a year in relation to forward earnings estimates.

ISRG PE Ratio (Forward) Chart

ISRG PE Ratio (Forward) data by YCharts.

I see this as an opportunity to get in on an unstoppable stock. For the long-term investor, March may be a good time to buy shares of this healthcare company.

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Stocks Mentioned

Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
$229.16 (2.62%) $5.86

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