Factors That Can Impact Our Valuation For Intuitive Surgical Going Ahead

Over the last one year, Intuitive Surgical (NYSE:ISRG) has generated returns in excess of 50%. An economic moat, a lack of competition and financial out-performance are some of the reasons for this excellent run. In this analysis, we look at the factors that can impact Intuitive’s growth going ahead:

Competition from other players: Intuitive Surgical faces little competition in the robotic surgery market, as there are significant barriers to entry and the company holds more than 1,000 patents worldwide. So far Intuitive has enjoyed a free run. TransEnterix was expected to be the challenger with its SurgiBot Systems. However, the company failed to secure FDA approval for its system. Other players such Mazor Robotics (Read: What Should Investors Make Of Medtronic’s Investment In Mazor Robotics? ), Smith & Nephew, Stryker, etc. are either small or focused on very niche areas of surgery. Though we don’t expect any competitor to challenge the company’s dominant position in the near-term, the cost of entering the market could decline and competition is likely to increase going forward, as Intuitive’s patents begin to expire and the efficacy of robotic surgery is clearly established. This could cause some pressure on Intuitive’s pricing and, therefore, margins.

Expansion of Procedures: The company’s surgical systems have been widely adopted for select procedures, but there are still many for which they have not been adopted. In 2015, the most common procedures were gynecological, which accounted for approximately 50% of total procedures using da Vinci systems. The company believes that wider adoption of other procedures is likely. A wider range of possible procedures will likely result in greater demand for the company’s systems.

Efficiency Concerns: Intuitive Surgical has been marketing its da Vinci system mainly on the premise of lower cost associated with robotic surgeries. However, the efficacy of robotic surgery in reducing costs is still debatable. A 2014 report by Columbia University suggested that surgeries performed using this system may actually cost significantly more than standard minimally invasive procedures, and without any major benefits. Though this study had minimal impact on the company’s sales in the past, such studies that raised concerns about robotic surgeries could potentially impact Intuitive’s sales in future.

Geographical Expansion: Intuitive Surgical is witnessing an increasing share of international sales that mainly come from Europe. The share of international revenues has increased from 20% in 2010 to 29% in 2015. The company is also expanding its operations in Japan and South Korea as the aging population and growing acceptance of robotic surgery in these countries provide significant growth opportunities. Going ahead, international expansion is likely to help Intuitive maintain its growth momentum.

Please refer to our complete analysis for Intutitive Surgical for detailed analysis.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology