Should You Buy Intuitive Surgical Stock Over This Healthcare Company?

-7.63%
Downside
263
Market
243
Trefis
ISRG: Intuitive Surgical logo
ISRG
Intuitive Surgical

We believe Intuitive Surgical stock (NASDAQ: ISRG) is currently a better pick than Becton Dickinson stock (NYSE: BDX), despite ISRG being the more expensive of the two, with its P/S ratio of 12.4x, compared to just 3.5x for BDX stock. This gap in the valuation is largely justified, given Intuitive Surgical’s superior revenue growth, lower financial risk, and better growth prospects.

If we look at stock returns, Intuitive Surgical’s 44% fall year-to-date has been worse than the <1% rise for Becton Dickinson. This compares with a 19% fall in the broader S&P 500 index. There is more to the comparison, and in the sections below, we discuss why we believe ISRG stock will offer better returns than BDX stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis Intuitive Surgical vs. Becton DickinsonWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Intuitive Surgical’s Revenue Growth Has Been Stronger

  • Both companies managed to see sales growth over the last twelve months. Still, Intuitive Surgical has witnessed comparatively faster revenue growth of 15.5% vs. 5.5% for Becton Dickinson.
  • Even if we look at a longer time frame, Intuitive Surgical has fared better, with its sales rising at an average annual rate of 16.2% to $5.7 billion in 2021, compared to $3.7 billion in 2018, while Becton Dickinson’s sales grew at an average rate of 8.5% to $20.2 billion in 2021, compared to around $16.0  billion in 2018.
  • For Intuitive Surgical, revenue growth over the recent past has been driven by a rebound in procedure volume, which was adversely impacted in the initial phases of the pandemic due to the shelter-in-place restrictions. The company continues to expand its installed base, which results in the growth of recurring revenues, such as consumables.
  • That said, the stock has seen a meaningful correction this year, partly due to the challenging macroeconomic environment and a Q2 miss. The capital spending for many hospitals is tepid, weighing on the overall robotic equipment demand.
  • Becton Dickinson’s revenue growth over the recent past has been aided by its Covid-19 diagnostic tests and the increased demand for its medical delivery solutions and pharmaceuticals systems, primarily pre-filled devices. Earlier this year, the company completed the spin-off of its diabetes business, which is now listed as a separate entity – Embecta (NASDAQ: EMBC) – on the Nasdaq stock exchange.
  • Our Intuitive Surgical Revenue and Becton Dickinson Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, Intuitive Surgical’s revenue is expected to grow faster than Becton Dickinson’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 13.9% for Intuitive Surgical, compared to a 9.2% CAGR for Becton Dickinson, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
Relevant Articles
  1. What’s Next For Intuitive Surgical Stock After Upbeat Q3?
  2. What To Expect From Intuitive Surgical’s Q3?
  3. Here’s Why Intuitive Surgical Stock Is A Better Pick Over This Medical Devices Company
  4. Will Intuitive Surgical Stock See Higher Levels Post Q2 Results?
  5. Should You Buy, Sell, Or Hold Intuitive Surgical Stock Around $200?
  6. Is The Selling Overdone In Intuitive Surgical Stock?

2. Becton Dickinson Is More Profitable, But It Comes With Higher Risk

  • Intuitive Surgical’s operating margin of 13.7% over the last twelve months is lower than 16.2% for Becton Dickinson.
  • This compares with 30.7% and 13.9% figures seen in 2019, before the pandemic, respectively.
  • Our Intuitive Surgical Operating Income and Becton Dickinson Operating Income dashboards have more details.
  • Intuitive Surgical’s free cash flow margin of 31.3% is much higher than 13.9% for Becton Dickinson.
  • Looking at financial risk, Intuitive Surgical is much better placed than Becton Dickinson. Its 0.6% debt as a percentage of equity is much lower than 21.1% for Becton Dickinson, while its 61.8% cash as a percentage of assets is much higher than 4.8% for the latter, implying that Intuitive Surgical has a better debt position and has more cash cushion.

3. The Net of It All

  • Intuitive Surgical has demonstrated better revenue growth and offers lower financial risk. On the other hand, Becton Dickinson is more profitable and is available at a relatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Intuitive Surgical is currently the better choice of the two, despite its higher valuation.
  • The table below summarizes our revenue and return expectations for Intuitive Surgical and Stryker over the next three years and points to an expected return of 63% for ISRG over this period vs. a 29% expected return for BDX stock, implying that both stocks offer good buying opportunity at current levels but if investors have to pick one, they will likely be better off buying ISRG over BDX, despite its high valuation, based on Trefis Machine Learning analysis – Intuitive Surgical vs. Becton Dickinson – which also provides more details on how we arrive at these numbers.

While ISRG stock looks like a better pick over BDX stock, it is helpful to see how Intuitive Surgical’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Syneos Health vs. Amerco.

With inflation rising and the Fed raising interest rates, among other factors, ISRG stock has plunged 44% this year. Can it drop more? See how low Intuitive Surgical stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
ISRG Return -2% -44% 187%
BDX Return 0% 0% 52%
S&P 500 Return -2% -19% 73%
Trefis Multi-Strategy Portfolio -2% -18% 226%

[1] Month-to-date and year-to-date as of 9/20/2022
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates