MWG Focus Stock: IRSG

Domo Arigato, Mr. Roboto.

Intuitive Surgical is a leader of robotic surgical systems (you can find more information here). While robotic surgery sounds futuristic, Intuitive’s systems have been used for over 20 years. In 2019, its systems were used in almost 900,000 surgeries. Robotic surgery provides for increased precision, faster recoveries, and lower risk of complications as well as less stress on surgeons. Its growth revolves around increasing market share through the sale of additional devices, the increased training of surgeons, and the expansion of the type of surgeries that can be performed robotically.  The company is extremely profitable, with a razor/razorblade model. Once the units are placed on-site, they generate ongoing instrument sales and service revenue.

The chart above, provided by Redburn Research, lays out the long-term growth opportunities for robotic surgery. We believe Intuitive will continue to capture a large share of this market going forward (90% ) despite new competitors entering the space. Today, approximately 5% of surgical procedures are performed robotically. This percentage is expected to continue rising as robotics continues to gain share and new technologies increase the number of procedures that adopt its use.

The market recognizes Intuitive’s robotic devices as a unique asset. The company deservedly trades at a premium to other surgery-focused medical device companies due to its consistently higher growth rate and technological lead. Two large medical companies trying to replicate Intuitive’s success have faced multi-year delays in launching their programs, allowing Intuitive to build on its 20-year head start.

We have a 3% position weight in Intuitive in the Global Equity Growth Portfolio. Despite its single business line focus, the company sports an $80B market cap with approximately $5B in cash, for an Enterprise Value of US$75B. The company generated US$2B in EBITDA in 2020, which should grow at a 20% rate in the future. The company achieves a return on equity in the 18-20% range, which is impressive given its limited use of financial leverage. We have a US$790 target price on the stock of Intuitive Surgical.

This Focus Stock is written by our Head of Research, Jamie Murray.

The purpose of this is to provide insight into our portfolio construction and how our research shapes our investment decisions. As always, we welcome any feedback or questions you may have on these monthly commentaries.

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