With 28 years (and counting) of development and expansion, Intuitive Surgical (ISRG -0.41%) has built quite a name for itself in the robotic-surgery market. Its state-of-the-art da Vinci Surgical Systems enable doctors to perform all sorts of minimally invasive surgeries (MIS).
While the pandemic did have a short-term negative impact on elective procedures, Intuitive's revenue and net profits still managed to increase at a rapid pace over the past five years (see chart below). Its recent quarterly results offer the latest example of its outstanding success. So does the stock price rising by 14% so far in 2023 despite the uncertain economy.
ISRG revenue (annual) data by YCharts.
Savvy investors understand that Intuitive shows great potential to continue building on its success and become a long-term portfolio booster. Here are three distinguishing characteristics to point to future outsized growth.
1. Intuitive Surgical stands to benefit from an aging population
The demand for minimally invasive surgery is only going to rise as the bulk of the population continues to age. This growing older population will demand surgical procedures that are easier on the patient and offer shorter recovery times. Intuitive's da Vinci system allows surgeons to have a 3D high-definition view of the operating field while using tiny, machine-manipulated instruments for smooth precision. It offers just what the patient ordered.
This is probably the reason Intuitive saw a whopping 82% jump in the number of da Vinci procedures performed globally between 2017 and 2021. The company's installed base of its systems has increased from 4,409 at the end of 2017 to 7,779 as of March 31. In the first quarter, Intuitive placed 312 systems globally.
Management anticipates that the number of installed systems will continue to rise. The company leases the systems as well as selling them and it leased 131 systems in the first quarter.
2. Intuitive's fundamentals are strong
The sale of these machines is not just what boosts its revenue. Intuitive's recurring revenue is even more impressive, accounting for around 70% of total sales. Disposable surgical instruments and accessories aid the top line.
In the most recently reported quarter, instruments and accessories revenue increased by 22% year over year to $986 million. Overall revenue for the quarter grew 14% year over year to $1.7 billion. Its adjusted net income jumped to $437 million from $413 million in the year-ago quarter.
3. It will be hard for competitors to beat this market leader
Medtronic, Johnson & Johnson, and Stryker are Intuitive's competitors in robotic surgery, but no one comes close to Intuitive's market share. According to BIS Research, Intuitive controls 80% of the market and is forecast to maintain that lead through at least 2031 thanks to a head start and an impressive moat.
Hospitals invest heavily in purchasing these systems and training surgeons to use them. The da Vinci systems require an initial capital investment ranging from $500,000 to $2.5 million for hospitals. So once a hospital commits to using the da Vinci system, it is unlikely to switch to a new system instead of a time-tested product.
Even with a cheaper product, it will be difficult to beat Intuitive's monopoly in robotic surgery. It has also expanded its service offerings beyond its core robotics business. In 2020, it acquired privately held Orpheus Medical, which offers clinical and imaging documentation to hospitals.
According to industry analysts, the global robotics market will grow at a compound annual rate of 10% for the next several years, reaching $17 billion by 2031.Along with increasing revenue and profits, Intuitive has a strong balance sheet that can support its strategy of developing more innovative products. It had $6.6 billion in cash, cash equivalents, and investments at the end of the quarter.
Economic downturns are expected to have minimal impact on Intuitive because healthcare is a defensive industry with rising demand. However, some crises, such as a global pandemic, may force hospitals to suspend elective procedures. Nevertheless, Intuitive's continued growth in the face of a global pandemic assures savvy investors that this is a risk worth taking.
