Intuitive Surgical: Strengths, Weaknesses, Opportunities, Threats

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh of an encouraging third quarter earnings report, I would like to pinpoint on a trailblazer in the medical devices sector, Intuitive Surgical (NASDAQ: ISRG).

Strengths:

  • Explosive Growth: In 2007, Intuitive Surgical reported revenue of $600.8 million, in 2011 the company reported revenue of $1,757.3 million, which represents year over year annual growth of 30.78%, an astonishing rate for any company
  • Innovative Advantage: Their main product, the da Vinci Surgical System, has been proved to stand head and shoulders above its competitors as the product allows the surgeon to perform precise movements, and has been shown, to in studies, be more effective and safe for the person being operated on, and is being adopted all over the world
  • Cash on Balance Sheet: The company currently has around $2,171.8 million of cash, cash equivalents, or investments on its balance sheets, which gives the company the capability to acquire smaller competitors or create a cushion for times of economic downfall
  • Institutional Vote of Confidence: 89% of shares outstanding are held by institutional investors, displaying the level of confidence long-term and big-money investors have in this company and its future
  • Tremendous Business Model: Intuitive makes money by first selling the $1.0-$2.3 million da Vinci system to a hospital or to another customer, and then deriving continuous revenue from them as they need further accessories for every surgery they perform       

Weaknesses:

  • Massive Valuation: The company carries a price to earnings ratio of 34.25, and even though Intuitive’s fast-paced growth compensates for some of the premium, this valuation still appears slightly expensive
  • Relative Small Exposure to da Vinci: In 2011, only about $777 million of Intuitive’s revenue was derived from the sale of da Vinci systems, out of a total of $1,757 million, and since the leftover $1 billion segment of their business is not as fast-growing, the da Vinci segment must continue to deliver incredible growth to fuel the entire business
  • Lack of Dividend: The company pays out no dividend at the current moment and has expressed no plans of doing so anytime in the near future, a major negative as the market has recently been very volatile

Opportunities:

  • Acquisitions: Because of Intuitive’s large stockpile of cash, they have the capability of acquiring other fast-growing companies to help fuel their overall growth
  • International Expansion: In 2011, the company sold 1,548 da Vinci systems in the United Sates, 372 in Europe, and 212 in the rest of the world, displaying the opportunity the rest of the world, especially China, presents
  • Increased Utilization: Currently the da Vinci Surgical System is used for a wide array of procedures, from operations that fight bladder cancer to endometriosis, however there are still a huge plethora of illnesses that the da Vinci cannot be used for, and into the future Intuitive is dedicated to making the machine capable of conducting other procedures  

Threats:

  • Competiton: Intuitive destroyed many other medical device companies’ revenue streams, and nothing is stopping another company from creating the same product a little better for a little less
  • Obamacare Tax: Because Obama won the election, it is almost inevitable that a 2.3% revenue tax will be imposed on medical device makers, cutting into the company’s profits
  • Vicious Short Sellers: Intuitive is not without its criticizers, there is a 10.04% short interest in the stock, and like investors have seen with Green Mountain and Netflix, when companies trading with steep premiums do not live up to expectations they are hammered quickly by these short sellers   

Competitors:

Major publically-traded competitors of Intuitive include Stryker (NYSE: SYK) and MAKO (NASDAQ: MAKO). Stryker is about the same size as Intuitive, in terms of market capitalization, and offers a widespread array of medical devices, including neurotechnology, reconstructive, and spine products. MAKO is under the one billion mark, and offers a robotic arm product in addition to orthopedic implants. Both of these companies compete with Intuitive in the medical device industry.

The Foolish Bottom Line:

Intuitive Surgical possesses several strengths, weaknesses, opportunities, and threats; however in the end appears to be a financially solid company with a game-changing product that is fueling the company’s growth. The only concerning aspect of the company is its hefty valuation. If one finds this valuation justified in the company’s growth and prospects, Intuitive is a tremendous long-term investment.   

Interested in Additional Analysis?

The recent market sell-off of MAKO Surgical shares has many wondering whether the potential growth prospects of the robotic surgery company make it a buy today or a stock to stay away from. Read The Motley Fool’s premium report to read up on the details of MAKO's story. Click here to access it now.   


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intuitive Surgical. Motley Fool newsletter services recommend Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure