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Intuitive Surgical Shares Are In the Pink

Shares have quadrupled in less than three years


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 didn’t hold shares of any company mentioned in this article.


Article printed from InvestorPlace Media,

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