Intuitive Surgical Shares Are In the Pink

Is it too late for investors to hop aboard the fast-moving Intuitive Surgical
(NASDAQ: ISRG ) express? By all indications, there's still time to join the
party. And what a celebration it's been up to now. Since late March 2009, the
Sunnyvale-Calif.-based maker of surgical systems has seen its shares more than
quadruple to nearly $440. And the company shows no signs of slowing down. It
recently reported a blowout third quarter, with net income climbing 41% on a
revenue gain of 30%. Intuitive also raised its revenue projections for the year,
estimating sales of more than $1.7 billion, up 22%-23% from 2010. Liking what he
saw, William Blair analyst Ben Andrew maintained his outperform rating on the
stock. Particularly impressive is that Intuitive achieved these blockbuster
results in what is supposed to be a rough market for medical equipment
companies. This led Seeking Alpha to call Intuitive "a stock that seems immune
to what constitutes typical or appropriate valuation on a growing med-tech
name." Intuitive is being rewarded for leading the transformation to robotic
surgery, a technology that should continue to gain favor as more hospital
administrators recognize its patient and economic benefits. The company calls
its offering the da Vinci surgery system, a technology that looks to be a big
step up from typical "open" surgery or the newer minimally invasive surgery.
With da Vinci, the surgeon sits at a console and controls the movement of
instruments that have been inserted into the patient through small incisions.
The company says da Vinci provides the surgeon with intuitive control, range of
motion, fine tissue manipulation capability and high definition 3-D vision,
while simultaneously allowing him to work through the small openings, according
to the company's 2010 annual report. Today, robot-assisted surgery has become
almost commonplace for removing the prostate gland and for hysterectomies. But
Intuitive is already expanding its technology into new areas such as colorectal
surgery and for removing tumors in the throat and voice box. And in the
not-too-distant future, look for da Vinci to be used in thoracic and
cardiovascular surgery. As the dominant player in the industry, Intuitive
doesn't appear to have any obstacles standing in the way of its continued
growth. The company doesn't have any major direct competitors and the barriers
to market entry are high. Any competitive system would have to be considerably
superior because switching to a new technology would force hospitals and care
centers to spend a lot of time and money to retrain their staffs. Those
investors who want to break into the robotic surgery game but find Intuitive's
share price and 37 price-to-earnings ratio too rich for their blood might want
to consider Mako Surgical (NASDAQ: MAKO ), which focuses on joint repairs. The
company boosted its applications in September with a hip-replacement product to
go along with its system for knees. At the time of publication, Barry Cohen
didnt hold shares