So far it’s been a rough year for Intuitive Surgical Inc. (ISRG, Financial) shareholders. They’ve seen greater than 20% of their investment in the $100 billion medical device maker disappear. Meanwhile, the iShares U.S. Medical Devices ETF (IHI) is down only about half as much.
The entire industry has been hit by a double whammy, as Covid has caused so many elective surgeries to be postponed and staff shortages plagued hospitals and surgery centers. In addition, as an article in Real Money pointed out, many new products being counted on failed to make the grade, notably Medtronic’s (MDT, Financial) renal denervation system and a host of diabetes offerings that were held up in regulatory.
But the waning of concerns over Covid may portend better days ahead for medical device companies, although the labor shortage shows few signs of abating.
CNBC’s Jim Cramer thinks the medical device market is at or near the bottom and suggests it’s time to “pick among the rubble, searching for the best bargains.” Among the “steals” he listed were Intuitive, as well as Edwards Lifesciences Corporation (EW, Financial) and Stryker (SYK, Financial).
Intuitive is the leader in robotic surgery, a global market, according to Verified Market Research, that was valued at $6.1 billion in 2020 and is projected to reach more than $22 billion by 2028, growing at a CAGR of 17.60%. The company owns an 80% market share and its da Vinci Surgical System is used by more than 6,700 hospitals around the world.
Caption: Better days may be ahead for medical device companies like Intuitive Surgical.
Given the size of the opportunity, Medtronic is stepping up its game, becoming an even bigger player last year when its Hugo system was approved in Europe. However, Gary Guthart, Intuitive’s CEO, doesn’t seem too worried about the competition. “We and other companies will be talking to the same customer about our products, and there’ll be winners and losers,” he told Evaluate. He thinks the company’s system is so entrenched in hospitals that challengers like Medtronic will have a hard time breaking through.
Intuitive offers four main surgical systems. The crown jewel is the da Vinci Xi, a complex system capable of performing a range of procedures from bariatric surgery and hernia repair to heart bypasses and prostatectomy.
A simpler form of the same system, the da Vinci X, is also on offer, and the final complex system is the da Vinci SP, whose various instruments are designed to enter through a single port, or incision.
The newest product is a bit of a departure. It is called Ion and it’s for bronchoscopy. A key advantage is that it requires no incisions since the instruments enter via the patient’s mouth. It is quite a bit cheaper than the other machines and competes more directly with Johnson & Johnson’s (JNJ, Financial) Monarch.
Last month, Intuitive reported fourth-quarter sales and earnings, both of which beat the Zacks consensus estimates. Over the last four quarters, the company has surpassed consensus EPS estimates three times.
The company’s shares are rated just short of a buy, with a 12-month average target price of about $336 and a high of $395, reported Yahoo Finance. Both UBS and Piper Sandler have upgraded the stock in the past 30 days.
