You may have heard of Intuitive Surgical (ISRG 1.05%) if you've ever had hernia surgery or another minimally invasive procedure. Intuitive sells the Da Vinci robot that many surgeons use for these types of surgeries. In fact, Intuitive has installed more than 6,900 of the systems worldwide. The company's annual revenue and profit have increased into the billions of dollars over the past few years.
The share price followed; it climbed more than 400% in a five-year period through 2021. Intuitive even did a stock split late last year after the shares soared past $1,000. But this year, the picture hasn't been bright for Intuitive shares. They've dropped about 35% so far. Could they rebound? Let's look at one green flag for the stock and one red flag before answering that question.
Green flag: market position
Intuitive has a market position that anyone would envy. The company holds nearly 80% of the robotic surgery market worldwide, BIS Research data show. And its closest competitor -- Stryker Corp. -- only holds about 9%. So Intuitive clearly has a significant lead.
Of course, other players are working to challenge Intuitive's market position. For instance, Johnson & Johnson and Medtronic plan to seek approval for new surgical robots this decade, according to Evaluate Medtech. These players and others may carve out market share.
But I don't expect them to represent major pressure for Intuitive. Here's why. Intuitive's Da Vinci systems costs about $2 million. Once a hospital makes such an investment, I wouldn't expect that hospital to shift to another product, especially since competing products aren't exactly cheap. For instance, Medtronic plans to use a pricing model for its robot similar to that of the Da Vinci, Evaluate reported. So, if there isn't a huge cost or performance difference, other companies may have trouble unseating this market giant.
Another plus for Intuitive's market position has to do with the surgeons who use the Da Vinci. Most of them trained on this product and know it well. So, they may not be eager to switch to a completely different system.
Red flag: the future of COVID-19
Now let's talk about the biggest threat to Intuitive in the coming months. And that's the future of the coronavirus. What does the coronavirus have to do with Intuitive's performance? A look into earnings at certain times during the pandemic answers the question.
For example, in the second quarter of 2020, Da Vinci procedures decreased 19% and revenue fell 22%. This was at a time when coronavirus hospitalizations were on the rise. And that meant hospitals postponed non-essential surgeries to devote resources to coronavirus patients. As a result, many Da Vinci procedures didn't happen. Intuitive doesn't only make money through the sales of systems. It also generates revenue through the sales of instruments and accessories used for surgeries. So, if a procedure is cancelled, Intuitive may lose out on selling these tools.
All of this means another big wave of COVID-19 could weigh on Intuitive's earnings. This element could stand in the way of Intuitive steadily increasing revenue from procedures. And it also could stand in the way of Intuitive winning new installation contracts. If hospitals are busy with coronavirus patients, they may not prioritize buying or leasing new robotic surgery systems.
Which flag dominates?
The coronavirus situation could represent a challenge for Intuitive -- if a potential wave results in a spike in hospitalizations. That could hurt revenue and the share price in the near term. But here's the good news: It's unlikely the coronavirus situation will be a long-term problem for Intuitive.
Vaccines and treatments are helping to manage the coronavirus crisis. And experts predict the situation will eventually shift from pandemic to endemic. This means the coronavirus will be around, but we likely won't see the extreme peaks in infection rates. And that should result in less pressure on hospitals.
So, in my view, the green flag of market leadership dominates. Intuitive should continue to benefit from its market position. This means that, over time, earnings are likely to grow. And Intuitive shares will have what it takes to rebound -- and climb -- as well.