Do you like surprises? Then you'll love robo-doctor Intuitive Surgical (NASDAQ:ISRG), which reports Q1 2006 earnings results tomorrow. Now, I'm not promising that the company will produce anything like last quarter's news, when it trounced analyst estimates by 162%. Heck, it would be just as much a surprise if Intuitive missed estimates. One thing is certain, though: a company like this one, which has never hit analyst estimates exactly, is bound to surprise us in some way tomorrow. Buckle your seatbelts.
What analysts say:
- Buy, sell, or waffle? Only five analysts follow Intuitive. Two say "Buy it;" three just hold.
- Revenues. Sales are expected to surge by 51% to $62.8 million.
- Earnings. Profits are predicted to crash by 20%, down to $0.20 per share.
What management says:
Intuitive CEO Lonnie Smith has to be the most understated executive in the public markets. Commenting on last quarter's 60% rise in sales and 115% increase in operating profits, Smith deadpanned: "We are pleased with our fourth-quarter revenue and earnings growth."
Pleased? Please. Any other exec reporting such news would do so while dancing a jig and tossing confetti.
What management does:
And how 'bout them margins? Even if you discard the banner quarter that Intuitive booked a few months ago on the back of a $24.1 million tax credit, the company sports margins that, outside the software space, you'll find only in companies that have no credible competitors. What's more, not only are Intuitive's rolling gross, operating, and net margins all well into the double digits, but they're also increasing rapidly as the business gains scale.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
57.8 |
63.4 |
64.8 |
65.9 |
67.3 |
67.6 |
|
Op. |
6.6 |
16.1 |
19 |
22.8 |
27.6 |
30.3 |
|
Net |
5.7 |
16.9 |
20.7 |
23.8 |
28.1 |
41.4 |
The Fool says:
Motley Fool Rule Breakers, which recommended Intuitive one year and 145% ago, had this to say about the company last month: "The company is rolling out the new da Vinci S robot, which costs about 50% more than its predecessor, and [because of] a typical upgrade cycle factor -- the fact that some hospitals will wait on any purchase to decide which system they want -- management was conservative about its 2006 outlook. That's a short-term issue for a company in a long-term winning position." I agree. Until Intuitive gets some real competition (see below), there's little risk of margin compression here, and the company overall should thrive.
My one concern, and it's a biggie, is valuation. With less than $41 million in trailing free cash flow and a market cap just shy of $4 billion, this company trades at 97 times free cash flow. With long-term growth projected at 25% per annum, that seems grossly overpriced to this Fool. But then again, what do I know? I didn't buy it 145% ago -- Rule Breakers did. If you're interested in getting full coverage on Intuitive Surgical and all other Rule Breakers recommendations, get yourself a free 30-day guest pass.
Competitors:
Very few companies -- and none of them listed on a public exchange in the U.S. -- do exactly what this company does. More broadly, its competitors in the medical-device arena include:
- Johnson & Johnson (NYSE:JNJ)
- Boston Scientific (NYSE:BSX)
- Medtronic (NYSE:MDT)
Fool contributorRich Smithdoes not own shares of any company named above.
