The words "major surgery" are frightening when thinking of our friends, loved ones, or even ourselves. Complications, long recovery times, pain, and scars are common concerns. However, robotic-assisted surgery is making giant strides in each area. According to the world-renowned Mayo Clinic, using Intuitive Surgical's (ISRG 1.62%) da Vinci system leads to fewer complications, less pain and blood loss, shorter hospital stays and quicker recovery, and less scarring.

In fact, after years of research, the Mayo Clinic now performs over 7,000 robotic-assisted procedures each year, ranging from hernia repair to open-heart surgery.

The Mayo Clinic is far from alone. More than 7,300 Intuitive Surgical da Vinci systems are installed worldwide, the vast majority here in the U.S. For perspective, the U.S. has nearly 6,100 hospitals. So there is a good chance you live near a surgical center using da Vinci.

What does this mean for Intuitive stock?

Increased adoption and Intuitive's stranglehold on the industry (roughly 80% market share) lead to massive profits for the company. As shown below, Intuitive's operating margins are far superior to those of other medical device manufacturers.

ISRG Operating Margin (TTM) Chart

ISRG Operating Margin (TTM) data by YCharts.

High margins lead to lucrative cash flows, and Intuitive has built a tremendous cash hoard over the years and carries no long-term debt. Intuitive had $8.6 billion in cash and investments at the end of 2021, representing a massive 10% of the current market cap. In 2022, the company is returning some of it to shareholders through stock buybacks. More than $1.6 billion has been spent thus far, with much more in the works. Intuitive had $7.39 billion, or 9% of the market cap, in cash and investments at the end of the third quarter.

Why are share repurchases good for stockholders?

Companies return cash to shareholders mainly through dividends and buybacks. Buybacks reduce the number of available shares, increasing each share's ownership stake. Some investors prefer to collect the dividend checks, but others see inherent advantages to repurchases. 

  • Share appreciation: With fewer shares available, earnings per share (EPS) and the stock's value generally rise. 
  • Tax advantages: Unlike dividends, share buybacks aren't taxed at the end of the year. This allows your shares to grow tax-free until sold.
  • Confidence: A company buying back its stock means it sees value in the stock and trusts future results.

A little company called Apple (AAPL 1.66%) is known for massive repurchases, which is probably a huge reason Apple shares occupy 40% of Warren Buffett's Berkshire Hathaway (BRK.A 0.58%) (BRK.B 0.38%) portfolio. 

Is Intuitive stock a buy?

COVID-19 slowed Intuitive's growth. Hospitals switched focus to overflowing ICUs, and many non-emergency surgeries were delayed. Intuitive's results are tied to the number of procedures performed because it makes 70% of its revenue from recurring sources, such as instruments, accessories, and services. This is tough during a global pandemic, but recurring revenue is fantastic long-term. It means profits will continue once the market is saturated with da Vinci systems.

Procedures should grow substantially over the long haul because our population is aging fast. There were 49.2 million Americans 65 and older in 2016, and that number is expected to grow to 77 million in 2034 and continue to rise, according to the U.S. census. Procedures performed with da Vinci grew 20% in Q3 year over year. 

The recovery from the COVID-19 slowdown is strong. The chart below shows Intuitive's annual revenue from 2019 through 2022, estimated based on the growth rate through Q3. 

Intuitive Surgical annual revenue

Data source: Intuitive Surgical. Chart and 2022 estimate by author. Estimate based on growth through Q3 2022.

The best valuation measure for Intuitive's stock may be the enterprise value-to-EBITDA (EV/EBITDA) ratio because it accounts for the company's large cash balance. The stock has recovered from its lows recently but trades under its recent historical average, as shown below.


ISRG EV to EBITDA data by YCharts.

Intuitive Surgical stock has the makings of a long-term outperformer and would be a welcome addition to many diversified portfolios. Is the stock a buy? Judging by the pace of buybacks recently, the company definitely thinks so.