Intuitive Surgical, Inc. (NASDAQ:ISRG)

CAPS Rating: 4 out of 5

Intuitive Surgical makes and maintains the da Vinci robotic device, an advanced surgical system that lets surgeons perform minimally invasive surgery.

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Player Avatar Zaegs (98.73) Submitted: 6/21/2011 1:35:20 PM : Outperform Start Price: $222.14 ISRG Score: +69.19

Much of the negative sentiment around this stock comes from two angles: Valuation & Soft Economy. Regarding valuation, many point to the high price to earnings ratio of 34. However, I believe that the growth rate of 35% makes a 34 P/E very reasonable. Regarding a soft economy, people have been quick to say that their great historical growth will slow because the economy isn't doing all that well and hospitals can't afford to make such significant investments. While that may have been a fair argument in 2008 or 2009, I don't see this as much of an issue given that their growth has yet to slow significantly during the past few years of very little economic growth. In fact, Intuitive Surgical sold another 120 systems during the first quarter of 2011. For reference, they have 1,840 systems installed as of March 31, 2011. My take: As people become more aware of the success of this system, they will start specifically requesting that the procedure be performed with da Vinci. It will be too long before hospitals won't be able to afford NOT to invest in such technology.

Why else do I like it? For starters, Intuitive Surgical has virtually no long-term debt. They're also loaded with cash...enough to easily cover ALL liabilities on their balance sheet. Not only that, but they have $1.3 billion in investments. Why do I point this out? Consider where interest rates are right now. They may be getting 2% or so annually on these investments, given that they are relatively short-term investments. The consensus is that interest rates will start rising at some point in 2012. Consider that in a year or two they could be earning 4% on these investments. An extra 2% on $1.3 billion would be another $26 million to earnings. That's not going to make or break the company, but it will be a nice addition to income in the future.

Right now, Intuitive Surgical's price is fairly reasonable. Not too high. Not too low. Given that the market has been iffy lately, I can't blame anyone for sitting on the sidelines and waiting for a sale. If it can dip down to $300 or less, you'd certainly be getting a good price for this great company.

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Member Avatar ROEoutshinesGOLD (99.06) Submitted: 8/24/2011 3:38:46 PM
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This is a great pitch. Thank you for sharing your opinion. I found it helpful.

Member Avatar njbowhunter (< 20) Submitted: 1/26/2012 9:33:14 AM
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Just to add some anacdotal evidence to Zaeqs' analysis above... A good friend of mine is a BC Urologist and Chief at a hospital. The hospital just bought a da Vinci system, not becuase they needed it or becuase they would make more money with it, but because the hospital down the road had one and they need to compete. It is used to portray an image of being technically current.

That being said, I have also had to make the decision of da Vinci vs conventional surgery for a prostatectomy. I chose da Vinci because it is the leading edge technology with a proven improvement in recovery time. I walked out of the hospital 24 hours later and was back to work part time after a week and full time after 2 weeks. I am 98% continent and things work pretty well with the help of a little blue pill.

The reason for the background is to illustrate my second piece of anectodotal evidence. In any conversation I have with someone trying to make the decision of da Vinci or traditional surgery, I strongly recommend da Vinci.

I believe both these reasons coupled with the fact that they are expanding the types of procedures performed with the da Vinci make for a very compelling growth story.

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