We consider Intuitive Surgical (NASDAQ: ISRG) inventory is positioned to develop its worth almost 10x in the long term as its robotic surgical enterprise revolutionizes the healthcare sector – tracing a trajectory much like what AI posterchild Nvidia’s inventory has witnessed over latest years (Buy, Sell, or Hold Nvidia Stock?). Right here’s why.
Reality: Intuitive Surgical has grown the annual variety of procedures carried out 5x from round 500k to 2.3 million within the final ten years.
ISRG product is compelling — and confirmed for the market
Working example: Greater than 300 million surgical procedures are carried out annually globally. So if robotic techniques can seize even half of that market, that may imply 150 million annual surgical procedures. That’s over 60 occasions the place ISRG is at the moment. There have been reviews stating the elevated utilization of robotic platforms in surgical procedures. For some hospitals, this quantity is already above 15%.
Why is that?
- Lowered errors: With assistance from a robotic system, human error throughout surgical procedures might be minimized.
- Lowered issues: Because the surgical procedures are minimally invasive, the gadget helps scale back surgical issues.
- Sooner restoration: It makes the restoration course of post-surgery simpler and fewer scars.
Success breeds success. The benefits related to minimally invasive surgical procedures are more likely to lure extra sufferers into choosing such procedures over conventional open surgical procedures.
Now, every robotic surgical system on common performs round 250 surgical procedures per yr. So 150 million annual robotic surgical procedures would require roughly 600,000 robotic surgical procedure platforms. Utilizing Intuitive Surgical’s revenues as a reference level and ignoring the one-time gross sales income for a unit, every robotic surgical procedure unit generates roughly $530,000 in devices and equipment revenues and an extra $130,000 in servicing revenues annually. We’re an annual recurring income of round $660,000 per unit. So, 600,000 items can generate over $350 billion in recurring revenues annually.
However wait, aren’t different gamers engaged on robotic surgical platforms?
Sure, however not all of them are making the identical progress. ISRG is manner forward available in the market. Its most important competitor, Medtronic’s Hugo, is but to safe the U.S. FDA approval. Johnson & Johnson is but to start medical trials for its robotic surgical procedure platform — Ottava. There are different comparatively smaller gamers, comparable to Asensus Surgical and Stryker, amongst others.
Intuitive Surgical’s newest platform – da Vinci 5 – is already accepted by the U.S. FDA. For hospitals, it could make sense to stay with Intuitive Surgical, provided that the surgeons are skilled to make use of this platform. Hospitals should incur extra prices to coach their surgeons in the event that they change to a brand new platform. Moreover, Intuitive Surgical’s da Vinci 5 is extra versatile and may carry out numerous surgical procedures, together with Gynecological, Urological, Bariatric, Colorectal, Thoracic, Cardiac, and Normal surgical procedures.
The most effective half?
ISRG enjoys a excessive gross margin of near 70% and web margins of round 30%. With an elevated put in base, and progress in recurring income, the margins may enhance additional.
If ISRG can seize about half of the worldwide robotic surgical procedure quantity, it may generate annual revenues of round $175 billion. With a 32% web margin, that’s a neat $55 billion in earnings. What’s that price? At a 30x earnings a number of, that may indicate a rise in Intuitive Surgical’s Valuation by about $1.6 trillion — implying a 10x leap from the corporate’s present inventory worth of round $500 to just about $5,000.
To make certain, constructing this form of scale can take a great deal of time. Nonetheless, traders might want to look properly out into the longer term. Assume 2035, possibly much more — this can be a buy-and-hold play with tons of long-term progress in retailer, with presumably massive near-term fluctuations! The underside line: Intuitive Surgical is rising robotic surgical procedures rapidly, has the expertise, regulatory approvals, and aggressive edge, and is addressing a probably huge market, making this excessive valuation inside attain.
ISRG inventory is up over 50% this yr. Nonetheless, the rise in ISRG inventory during the last three-year interval has been removed from constant, with annual returns being extra risky than the S&P 500. Returns for the inventory have been 32% in 2021, -26% in 2022, and 27% in 2023. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a set of 30 shares, is way much less risky. And it has outperformed the S&P 500 annually over the identical interval. Why is that? As a bunch, HQ Portfolio shares offered higher returns with much less danger versus the benchmark index; much less of a roller-coaster journey, as evident in HQ Portfolio efficiency metrics.
| Returns | Oct 2024 MTD [1] |
2024 YTD [1] |
2017-24 Whole [2] |
| ISRG Return | 5% | 52% | 630% |
| S&P 500 Return | 2% | 23% | 161% |
| Trefis Bolstered Worth Portfolio | 1% | 15% | 765% |
[1] Returns as of 10/24/2024
[2] Cumulative complete returns because the finish of 2016
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.
