5
Intuitive Surgical, Inc. (ISRG)
- Equity
- US
- Healthcare
RISK
RETURN
Key risk factors
Strong trading liquidity
Low price volatility
Resilient to price shocks
Key return factors
Strong margins and returns
Greatly overvalued vs peers
Very low or no dividends
Company profileIntuitive Surgical, Inc. develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally. The company offers the da Vinci Surgical System to enable complex surgery using a minimally invasive approach; and Ion endoluminal system, which extends its commercial offerings beyond surgery into diagnostic procedures enabling minimally invasive biopsies in the lung. It also provides a suite of stapling, energy, and core instrumentation for its surgical systems; progressive learning pathways to support the use of its technology; a complement of services to its customers, including support, installation, repair, and maintenance; and integrated digital capabilities providing unified and connected offerings, streamlining performance for hospitals with program-enhancing insights. The company was incorporated in 1995 and is headquartered in Sunnyvale, California.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
72.00
72.90
PEG
5.60
-
P/B
10.20
9.00
P/S
19.60
17.90
P/FCF
389.00
166.60
EV/EBITDA
64.30
61.40
Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Decent
Over the past six months, the stock has consistently climbed, resulting in 27% total increase. When compared to its international counterparts in the same sector and industry (as shown above), the stock has exceeded their performances, leading by 27ppts in total. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is mildly favourable.
Analyst view: Somewhat favourable
The average target price is 418 and suggests 3% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 475.0. This translates into 17% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 375.0. This is equivalent to 7% downside potential in the worst case.
Profitability: Strong
RoE
Intuitive Surgical, Inc. reported a return on equity (RoE) of 14.6% in the last 12 months, down from 14.7% in FY23. The market consensus projects an RoE of 13.1% in FY24, however, this time below its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 12.7% in the last 12 months, an increase from 12.7% in FY23. The market analysts predict that RoA will be 11.3% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 14.1%, above the peers. The consensus estimate for FY24 for RoCE is 11.1%, however, this time below its peers.
Net margin
EBITDA margin
Historically, ISRG has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 27.2%, a growth from 25.2% in FY23. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 29.9% in the last 12 months, up from 28.1% in FY23.
RoIC / WACC = 1.4(average value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.4 in the past several years. This ratio implies a average shareholder value creation. Growth: Average
Revenue
EBITDA
EPS
Free cash flow
ISRG reported revenue of USD 7 318mn in the last 12 months, up 3% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 10% from FY23 to USD 5.64. Market expects EPS to reach USD 6.28 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown rapidly in recent years (positive). This all contributed to fast EPS growth (positive). Free cash flow, on the contrary, has climbed rapidly in recent years thanks to good cash generation, in contrast to the EBITDA dynamics. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Moderate
The risk of default is moderate. We note robust profitability, adequate interest coverage, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor cash flow generation.
Volatility: Low
In normal market circumstances, ISRG is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. We would also like to highlight the minimal intraday volatility of the instrument.
Stress-test: Resilient
In highly turbulent market conditions, ISRG is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.
Selling difficulty: Very low
ISRG boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.