Intuitive Surgical (ISRG -1.16%) has made many investors richer this year and over the years. The stock has climbed more than 20% year to date. And it's advanced 348% over the past five years. That's about three times more than the S&P 500 during that period.
At the same time, the maker of robotic surgical systems generally has grown profit, revenue, and cash. And Intuitive reported third-quarter earnings this week, surpassing estimates for at least the fourth consecutive quarter. All of this sounds great. But there's even more. Let's take a look at three things smart investors know about this winning company.
Image source: Getty Images.
1. Most revenue doesn't come from selling surgical systems
Intuitive sells its da Vinci surgical robot for about $2 million. It has installed 6,525 systems in hospitals worldwide. Some hospitals buy the system outright. Others lease a system. For example, in the third quarter, Intuitive shipped 139 systems under lease agreements. This allows the company to bring in revenue over time.
But here's what's even bigger for Intuitive: The sales of instruments and accessories. Tools such as attachments for the robotic arms are necessary for each da Vinci surgery -- and they're disposable. This means the more surgeons use the da Vinci, the more tools they need -- and the more revenue flows into Intuitive's coffers.
Sales of instruments and accessories represented 53% of Intuitive's third-quarter total revenue. And each quarter, this area contributes the most to total revenue. This is key because it means Intuitive's revenue opportunity isn't over when it sells a system. Instead, it's just beginning.
2. It will be difficult to dethrone this leader
Intuitive is the global leader in the robotic surgery market. The company holds nearly 80% of the market, according to a report by BIS Research. The closest competitor is Stryker Corp. with about 9% market share, the research shows. Dozens of others -- such as Johnson & Johnson and Medtronic -- also compete in the market.
Why will it be difficult for these and other players to take market share? First, many surgeons are trained on the da Vinci system. Clearly, these professionals will favor using the product they know so well.
Beyond this, we should keep in mind the number of da Vinci systems already installed globally. After investing millions of dollars, hospitals aren't likely to remove the da Vinci and install a competing model. They likely will aim to get their money's worth -- and continue with Intuitive. And finally, if hospitals and surgeons are happy with the da Vinci's performance, they may not be very willing to take a risk and try another system.
All of this means dethroning Intuitive as leader in this market won't be an easy job.
3. COVID-like events may be Intuitive's biggest risk -- but they're rare
Usually, market downturns and economic troubles don't weigh tremendously on companies like Intuitive. Even non-urgent surgeries are still necessary at these times. So even if consumers buy fewer discretionary items, they'll go in for hernia surgery.
The big exception was the coronavirus pandemic. The crisis forced hospitals to postpone surgeries during the worst moments of the pandemic and focus on coronavirus patients. This weighed on Intuitive's revenue for two reasons.
First, hospitals performed fewer surgeries -- so ordered fewer instruments. And second, hospitals directed most of their attention to handling the coronavirus -- that meant they were less likely to purchase a da Vinci system or consider leasing one.
Now here's the good news. This situation was temporary. Intuitive quickly recovered, proving its financial strength. Here's a look at the company's quarterly revenue and net income growth since the worst of the pandemic -- and growth of cash on an annual basis.
ISRG Revenue (Quarterly) data by YCharts
It's reasonable to imagine a pandemic that changes the way hospitals organize care won't happen on a regular basis. And future economic or market problems won't result in such a drop in Intuitive's business. So smart investors realize Intuitive still is a great stock to own -- during good times and bad.
