Shares of Intuitive Surgical (ISRG) jumped after the company reported earnings last week, but the numbers don’t look good and I wouldn’t be in the stock right now.
For those not familiar with the ISRG story, the company manufactures the da Vinci robotic doctor that real doctors use like a video game to perform surgeries. The da Vinci machines cost over $1 million to purchase and then the hospitals have to buy replacement parts for $100,000 plus per year. Parts are a little more than 50% of ISRG’s revenue.
The issue with the stock now is hospitals in the U.S. already own the machines, and growth must be found overseas. System sales are negative year-over-year and profits are expected to decline in 2014.
One Year Chart
ISRG beat the street by a good margin last quarter, but only had 1% profit growth. The estimated long-term growth rate is a weak 10% per year. ISRG’s P/E of 28 is high. Estimates look sad.
I don’t see much here to get excited about. The positives here are the company has a lot of cash to buy back its own stock and profits should climb in 2015 due to easy comparisons.
Fair Value
ISRG’s part sales are a nice recurring revenue stream investors can count on. So even though the long term growth rate isn’t high, the stock’s still worth 20 times earnings. Right now ISRG is overvalued.
Sharek’s Take
Intuitive Surgical is one of the biggest winners of my investment career, as I originally got in the high $20s. Now the stock isn’t great because system sales have slowed and that’s brought down profits. ISRG is around $415 now and is worth $300 in my eyes. I may take it off the radar next quarter and just stop following it.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
