What’s The Upside For Intuitive Surgical’s Stock?

There is an upside of over 6% for Intuitive Surgical’s (NASDAQ:ISRG) stock, in our view. We estimate Intuitive Surgical’s fair price estimate to be around $652, based on expected EPS of $14.59 on an adjusted basis for full year 2020 and price to earnings multiple of 44.7x. This compares with the current market price of $611, implying a 45.4x P/E Multiple based on average consensus EPS estimate of $13.46 for 2020. Intuitive Surgical’s stock price has seen steady growth over the last few years, led by steady EPS growth. In this dashboard on Intuitive Surgical’s valuation, we focus on four factors: revenue, net income margin, number of shares, and price to earnings multiple to arrive at our price estimate.

Intuitive Surgical primarily serves the robotic surgical systems market. Its primary device is the da Vinci Surgical System, which helps surgeons perform minimally invasive surgeries through directions from a console. Its customers include Hospitals, surgeons, and healthcare institutions. It competes with other robotical surgical devices companies, including SOFAR S.p.A., Eterne, Titan Medical, Hitachi, Olympus, and Mazor Robotics.

#1. Estimating Intuitive Surgical’s Total Revenues:

• Total revenue grew at a CAGR of 18% from $2.7 billion in 2016 to $4.5 billion in 2019, and it could grow 16% to $5.2 billion in 2020.

• The revenue growth was driven by the overall increase in the company’s installed base of its robotic devices.

• More people opting for procedures through robotic platforms is driving the demand for the company’s products. In fact, total number of procedures performed by Intuitive Surgical’s systems grew 18% y-o-y to 1.23 million in 2019.

• Our interactive dashboard analysis, ISRG Revenues: How Does Intuitive Surgical Make Money?, provides an in depth view of the company’s revenues.

#2. Deriving Intuitive Surgical’s Adjusted Net Income:

• Adjusted Net Income grew from $0.9 billion in 2016 to $1.5 Billion in 2019, and we expect it to be around $1.7 billion in 2020.

• This growth will likely be led by higher revenues, partly offset by a modest decline in net income margin, as the company sees higher sales of newer products and makes infrastructure investments.

• The jump In Adjusted Net Income Margin in 2018 can be attributed to the impact of the U.S. Tax Act.

• Our interactive dashboard analysis, ISRG Expenses: How Does Intuitive Surgical Spend Money?, provides an in depth view of the company’s expenses.

#3. Determining Intuitive Surgical’s Adjusted EPS:

• Adjusted EPS declined from $22.42 in 2016 to $9.09 in 2017, due to change in shares outstanding. The company split its share in the ratio of 3:1.

• EPS grew thereafter to $12.76 in 2019, and it is estimated to be $14.59 in 2020.

• EPS growth can be attributed to higher adjusted net income, partly offset by an increase in number of shares.

#4. Estimating Intuitive Surgical’s Stock Price:

• Our price estimate of $652 for Intuitive Surgical’s stock is based on our Detailed Valuation Model, and implies 44.7x P/E Multiple on expected 2020 Adjusted EPS of $14.59.

• This compares with the current market price of $611, implying a 45.5x P/E Multiple based on average consensus EPS estimate of $13.46 for 2020.

Comparing Intuitive Surgical’s Historical P/E Multiple With That of Its Peers

• P/E Multiples are based on Share Price at the end of year, and reported adjusted EPS for the full year (fiscal).

• Intuitive Surgical’s P/E Multiple has been higher than that of Abbott, Boston Scientific, and Medtronic, primarily due to strong revenue growth.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams