We believe Intuitive Surgical stock (NASDAQ: ISRG) is currently a better pick than Medtronic stock (NYSE: MDT), given its better prospects. Although Medtronic is trading at a comparatively lower valuation of 3.4x trailing revenues vs. 15.4x for Intuitive Surgical, this gap in the valuation is justified mainly given the latter’s superior revenue growth and lower financial risk, as discussed below.
If we look at stock returns, both MDT and ISRG fell over 21% over the last year, aligning with the 20% 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 MDT 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 Medtronic vs. Intuitive Surgical: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Intuitive Surgical’s Revenue Growth Is Better
- Intuitive Surgical’s revenue growth of 11.3% over the last twelve months is much better than -1.7% for Medtronic.
- 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 Medtronic saw its revenue rise at an average annual rate of just 1.3% to $31.7 billion in fiscal 2022 (Medtronic’s fiscal ends in April), compared to $30.0 billion in 2018.
- Medtronic’s sales were hurt during the pandemic due to the postponement of elective surgeries. The rise of new Covid-19 variants, including Delta and Omicron, impacted demand recovery.
- However, the company saw a rebound in sales over the last year or so, aided by higher procedure volume. The company also benefits from its new products, including the Micra AV pacemaker and Abre venous self-expanding stent system for Deep Venous disease.
- Its Medical Surgical segment sales are adversely impacted due to a continued decline in ventilator demand. Furthermore, forex headwinds have also weighed on the overall top-line growth in recent quarters.
- 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.
- Our Medtronic Revenue Comparison and Intuitive Surgical Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, Intuitive Surgical’s revenue is expected to grow faster than Medtronic’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 1.6% for Medtronic, compared to a 13.7% CAGR for Intuitive Surgical, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for companies that are negatively impacted by Covid and those that are 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.
2. Medtronic Is More Profitable, But It Comes With Higher Risk
- Medtronic’s operating margin of 21.2% over the last twelve-month period is marginally better than 20.5% for Intuitive Surgical.
- This compares with 25.2% and 30.7% figures seen in 2019, before the pandemic, respectively.
- Intuitive Surgical’s free cash flow margin of 24.7% is also better than 23.0% for Medtronic.
- Our Medtronic Operating Income Comparison and Intuitive Surgical Operating Income dashboards have more details.
- Looking at financial risk, Intuitive Surgical fares better. Its 0.5% debt as a percentage of equity is much lower than 21.6% for Medtronic, while its 61.7% cash as a percentage of assets is higher than 9.9% for the latter, implying that Intuitive Surgical has a better debt position and more cash cushion.
3. The Net of It All
- We see that Intuitive Surgical has demonstrated better revenue growth, has a better debt position, and has more cash cushion. On the other hand, Medtronic is more profitable and is available at a comparatively lower valuation.
- 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.
- The table below summarizes our revenue and return expectations for Medtronic and Intuitive Surgical over the next three years and points to an expected return of 15% for Medtronic over this period vs. a 46% expected return for Intuitive Surgical, based on Trefis Machine Learning analysis – Medtronic vs. Intuitive Surgical – which also provides more details on how we arrive at these numbers.
While ISRG stock looks like a better pick over MDT stock, it is helpful to see how Medtronic’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 UnitedHealth Group vs. Pool Corporation.
Given the higher inflation and the Fed raising interest rates, among other factors, MDT stock fell over 20% last year. Can it drop more from here? See how low Medtronic stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||0%||0%||72%|
|Trefis Multi-Strategy Portfolio||2%||2%||221%|
 Month-to-date and year-to-date as of 1/5/2023
 Cumulative total returns since the end of 2016