It seems that the question is worded in a slightly different context every year but the underlying theme is always same. What is going to happen on Wall Street if … and here you can substitute the event de jour.
Unfortunately, all the crystal balls in the world are not going to help your portfolio. Instead, you should consider researching quality investment opportunities such as Intuitive Surgical (ISRG).
Intuitive manufacturers surgical robots known as the da Vinci systems that make the work of trained surgeons easier by increasing visibility and allowing for finer control of the surgical instruments. They also allow surgeries to be done with smaller incisions, thereby reducing bleeding and recovery times.
When I last wrote about the company a year ago, my estimated earnings target was $21.50 per share, with a 12-month target price on the shares of $750, for a capital gain of nearly 9 percent.
So how did the company do? Earnings came in at $22.36 and the shares recently closed at $1,016.77.
Before you gasp at the price of the stock, please note that the company’s board of directors has approved a 3-for-1 stock split and that, post-split, trading will commence on Friday.
For its second quarter, Intuitive Surgical posted revenues $756.2 million, a gain of 12.8 percent year-over-year. For the quarter, net income was approximately $228 million, representing growth of approximately 3.6 percent year over year. Adjusted earnings per share came in at $5.95, compared with $5.62 in the same period a year earlier.
The volume of procedures rose approximately 16 percent in the second quarter, which resulted in an expansion of the company’s recurring revenue stream. Revenues from instruments and accessories rose approximately 17 percent during the quarter, while systems revenue was up about 7 percent.
In the second quarter, 166 da Vinci surgical systems were shipped, compared with 130 in the same period a year ago, a 27.8 percent increase. The company also launched a lower-priced da Vinci X system.
Growth in the quarter was primarily driven by the recurring revenues generated from selling instruments, accessories and services, although there is a degree of higher system revenues.
Intuitive Surgical’s business plan is focused on accelerating its strategic investments and expanding across low-cost and untapped markets, thereby strengthening its position amid impending competition.
Sequentially, operating expenses in the second quarter rose approximately 2 percent, related to planned product development investments. The investments will likely provide returns in the medium to long term.
The shares traded at their 52-week high of $1,003 on Aug. 31. For those who like a little bit of technical analysis, the shares have a 50-day moving average of about $1,001 and a 200-day moving average of about $900.
Intuitive Surgical expects its capital investment to moderate during the second half of 2017. But its fiscal 2017 operating expenses are expected to increase 17 to 18 percent.
The company expects to spend approximately $80 million for the deployment of the da Vinci X and a da Vinci Sp surgical systems, flexible, catheter-based system deployment, enhanced imaging and intelligent systems, and global infrastructure development.
The investments also include any clinical and economic investments. In the second quarter, the company invested in a clinical trial.
Although Intuitive Surgical leads the surgical-robotics market, there are competitive threats from other major players in the sector. These companies include TransEnterix, Medtronic and Verb Surgical, which is a joint venture of Johnson and Johnson and Alphabet.
The intrinsic value of the shares, using the model of free cash flow to the firm, is $1,115 per share. My estimated earnings target for fiscal 2018 is $28.00 per share pre-split, with a 12-month target price on the shares of $1,100 pre-split, for a capital gain of about 8 percent.
Lauren Rudd is president of Rudd International, an asset management firm. Neither Lauren Rudd nor his employees hold any shares discussed or have plans to buy them within 30 days, nor is there any intended inducement to buy or sell any security. You can write to Lauren Rudd at Lauren.Rudd@RuddInternational.com or call him at 941-706-3449. For back columns, go to www.ruddreport.com. Lauren Rudd offers commentary Thursdays on SNN News 6 during the 5:30 p.m. live newscast.