Intuitive Surgical Inc. (Ticker: ISRG) may not be a company you have heard about, but it is one you should know about. The company reported earnings yesterday, and the stock is up $41 today and up over 200% the last 4 years.
So what makes this company special? They sell and service the da Vinci Surgical Robot, the only surgical robot of its kind in the world. These million dollar machines allow surgeons to remotely perform surgery that is much less invasive to the patient, allowing patients to recover up to 70% faster. Hospitals love it because it reduces mistakes and cuts down on lengthy stays with less internal bleeding.
The result is that sales of this machine continue to grow, so the company makes money by selling the machines. Even better, the kinds of surgeries for which the machine can be used continues to grow too, and the company sells instruments and accessories for all those procedures.
The sales of these instruments and accessories is big business since some of the pieces for this machine have to be replaced every surgery. The company made almost $2000 per procedure this way. Gillette rode this model to greatness when they sold you the razor, then made huge buckets of profits by selling you the over-priced razor blades forever.
Oh, did I mention that Intuitive Surgical services these machines as well, and they are the only ones that can do the job? Regular maintenance and alignment are crucial for optimum performance, and the hospitals are willing to pay for it. Service revenues were up 27% this past quarter.
The company is also just beginning to expand internationally, but even without that overseas growth the potential market is huge. Do the math. The company has sold only 1752 machines worldwide, and there are 5795 hospitals just in the US. Many of the hospitals that have bought one of the da Vinci machines have purchased another. Cha Ching!!
So to wrap it up, ISRG should be able to continue to sell the actual machines for a long time to come as hospitals buy their first and foreign sales increases. They also make money off of each procedure, and the number of procedures is rising as they sell more machines. The machine is constantly being approved for new surgeries, so you have additional growth from new procedures. Throw in increasing revenues from servicing, and you have the whole juicy story.
The stock is volatile, and it just had a huge run, but any pullback is an excuse to buy this company. With 34% growth last year, 73% gross margins, an early adopter lead over future rivals, and a current monopoly status, you should own this stock as your ultimate hedge against rising healthcare costs. Don’t be surprised if this company gets bought for a substantial premium.