Intuitive Surgical(NASDAQ: ISRG) is gearing up for its next act. With new products in development and an entire global market to penetrate with its robotic surgical systems, the current moment seems packed with opportunity for both the company and its shareholders.
Nonetheless, Intuitive is only at the starting line of a fight against new rivals for the operations its system can perform. So let's analyze what's up next for this company's stock to see whether it's still a favorable investment.
Headwinds are blustering, but they might not matter much
Intuitive's second-quarter earnings report, published on July 18, featured a mixed bag of good results and warnings about the future. The good news is that quarterly net income rose by 26.7% to reach $527 million, thanks to growth of 17% in the volume of procedures performed in the period using its da Vinci robotic surgical suites. Many of those additional procedures were for general surgery applications, one of Intuitive's fastest-growing segments.
And the number of its globally installed surgical systems climbed by 14% to arrive at 9,203. That means there will be plenty of ongoing demand for the company's accessories, instruments, replacement parts, and services packages, which together constitute 83% of its recurring revenue. So the long-term picture continues to look good, as one of Intuitive's biggest strengths is consistently rolling out its systems to more hospitals, and then upselling existing customers on its newly developed instrumentation and training programs.
That doesn't mean the near term will be without a few bumps.
Bariatric surgery volumes performed with da Vinci units continued to decline in the second quarter. Per management, the culprits for the decline are the weight loss medicines produced by the likes of Novo Nordisk and Eli Lilly, which are outrageously popular at the moment. People simply won't need bariatric surgery as frequently if there are drugs that can accomplish the same goal.
Company leaders don't believe that the detrimental impact of these medicines on Intuitive's procedure volume has concluded. The uncertainty of the past year or so is now over: There is now definitely a new headwind in play, and it won't be ebbing anytime soon.
But there are other new headwinds, too.
Management cites challenges with its operations in China and Korea stemming from physicians going on strike, as well as the increasing presence of domestic competitors to the da Vinci. The organized labor action is likely to resolve soon enough, but the presence of competing products is now a fact of life for Intuitive, at least for highly developed economies in Asia.
This is a solid play for most portfolios
It's important to appreciate that Intuitive just finished navigating a period when the headwinds it faced were much fiercer and more disruptive.
Due to the pandemic, from 2020 through 2022 it dealt with sharp supply constraints on its manufacturing, as well as the cancellation of voluntary surgical procedures as hospitals attempted to conserve surge capacity. That made it unprofitable for a handful of quarters in succession. But during that challenging period, it kept performing more procedures with its surgical robots than the year prior, while also deploying more of its systems than before. It didn't stop research and development (R&D) of new instruments and machines, nor did it stop building out its customer base.
Today, Intuitive has more than $3 billion in cash, equivalents, and investments on hand, and nothing in the way of debt. While it's true that competition will keep gaining strength for the foreseeable future, the market for robotic surgical systems is nowhere near saturation. And at least for now, none of Intuitive's competitors is notable enough to be a threat even on a very long timescale.
So, what's likely to be up next for Intuitive's stock? More or less the same as before -- which is to say that it'll probably still go up over time, typically at a faster pace than the wider market.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
