Here’s Why Intuitive Surgical Stock Is A Better Pick Over Its Peer

ISRG: Intuitive Surgical logo
Intuitive Surgical

We believe Intuitive Surgical stock (NASDAQ: ISRG) is a better pick than Stryker stock (NYSE: SYK) in the medical devices industry. Although ISRG stock trades at a higher valuation of 13x trailing revenues, compared to just 5x for Stryker, this gap in valuation makes sense, in our view, given Intuitive Surgical’s superior revenue growth, profitability, and financial position, as discussed below.

Looking at stock returns, SYK, with 0% returns in the last twelve months, has fared better than ISRG stock, down 20%, and the broader S&P500 index, down 9%. There is more to the comparison, and in the sections below, we discuss why we believe ISRG stock will offer better returns than SYK stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Intuitive Surgical vs. StrykerWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Intuitive Surgical’s Revenue Growth Is Better

  • Both companies managed to see sales growth over the last twelve months. Still, Intuitive Surgical’s 9% revenue growth was marginally better than the 8% growth for Stryker.
  • Even if we look at a longer time frame, Intuitive Surgical has fared better, with its sales rising at an average annual rate of 12% to $6.1 billion in 2022, compared to $4.5 billion in 2019, while Stryker’s sales grew at an average rate of 7% to $18.0 billion in 2022, vs. $14.9  billion in 2019.
  • 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.
  • Intuitive Surgical’s installed base has increased 35% to over 7,500 in 2022, compared to less than 5,600 in 2019.
  • Stryker’s revenue growth has been driven by new product launches, such as – Surgi-Count+ – a surgical sponge counting system, Insignia Hip Stem, Power-PRO 2 ambulance cot, and Vecta 71/74 aspiration system, among others. Of late, it has seen a rise in volume for both of its segments – MedSurg & Neurotechnology and Orthopedics and Spine.
  • Stryker’s revenue growth has also been buoyed by the acquisition of Wright Medical, a medical device company, in late 2020, and Vocera Communications – a company focused on communications systems for the healthcare industry – last year.
  • Our Intuitive Surgical Revenue Comparison and Stryker Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Intuitive Surgical’s revenue is expected to grow faster than Stryker’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 13.6% for Intuitive Surgical, compared to a 7.2% CAGR for Stryker, 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. Should You Pick Intuitive Surgical Stock At $375 After An Upbeat Q4?
  2. Is Intuitive Surgical Stock A Pick After A 9% Fall In A Month Amid Mixed Q3?
  3. Procedure Volume Growth To Drive Intuitive Surgical’s Q3
  4. With 2x Potential Returns Is DexCom A Better Pick Over Intuitive Surgical?
  5. Here’s What To Expect From Intuitive Surgical’s Q2
  6. Should You Buy Intuitive Surgical Stock Over MDT?

2. Intuitive Surgical Is More Profitable, And It Comes With Lower Risk

  • Intuitive Surgical’s operating margin of 31.6% over the last twelve months is much higher than 16.1% for Stryker.
  • This compares with 30.7% and 18.2% figures in 2019, before the pandemic, respectively.
  • Our Intuitive Surgical Operating Income Comparison and Stryker Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Intuitive Surgical is much better placed than Stryker. Its <1% debt as a percentage of equity is significantly lower than 15% for the latter, while its 63% cash as a percentage of assets is much higher than 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, is more profitable, and offers lower financial risk. On the other hand, Stryker 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 will likely offer better returns.
  • 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 58% for ISRG over this period vs. a 21% expected return for SYK stock, implying that both stocks offer good buying opportunity at current levels, but if one has to pick among the two, ISRG appears to be a better bet, based on Trefis Machine Learning analysis – Intuitive Surgical vs. Stryker – which also provides more details on how we arrive at these numbers.

While ISRG may outperform SYK in the next three years, 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 higher inflation and the Fed raising interest rates, among other factors, ISRG stock has declined 20% in the last twelve months. 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 Feb 2023
MTD [1]
YTD [1]
Total [2]
ISRG Return -6% -13% 229%
SYK Return 3% 7% 119%
S&P 500 Return -2% 4% 78%
Trefis Multi-Strategy Portfolio -4% 7% 237%

[1] Month-to-date and year-to-date as of 2/28/2023
[2] Cumulative total returns since the end of 2016

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