Is Intuitive Surgical Likely to Outperform in 2013?

With shares of Intuitive Surgical (NASDAQ:ISRG) trading at around $563.50, is ISRG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

isrg

Intuitive Surgical has exceeded expectations once again. This shouldn’t come as a surprise. Intuitive Surgical has a reputation for sandbagging, which is good news for investors. Q4 revenue came in at $609 million, which beat expectations of $587 million. This was also a 23 percent increase year-over-year. EPS came in at $4.35, which beat expectations of $4.04. Profit increased 16 percent year-over-year.

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The majority of this good news stems from the company’s da Vinci robotic surgical systems. For Q4, 175 units were sold compared to 152 units sold in Q4 one year ago. Procedures increased 25 percent. The largest increases were in gynecology and general surgery. Each da Vinci surgical system costs $1.5 million, and then there are parts that must be replaced after each use. If you’re not familiar with the da Vinci robot, it has robotic arms, cameras, and a remote-controlled console, which helps doctors perform surgeries with tiny incisions. Intuitive Surgical expects procedures with the da Vinci robot to increase 20 to 30 percent in the coming year. As always, there is a change that the company is sandbagging here.

Now let’s take a look at some important numbers for Intuitive Surgical.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio and balance sheet for Intuitive Surgical are both superb.

Debt-To-Equity

Cash

Long-Term Debt

ISRG

0.00

$1.14 Billion

$0

MAKO

0.00

$28.42 Million

$0

SYK

0.21

$3.86 Billion

$1.77 Billion

 

T = Technicals on the Stock Chart Are Strong

Intuitive Surgical has outperformed Mako Surgical Corp. (NASDAQ:MAKO) and Stryker Corporation (NYSE:SYK) over the past three years.

1 Month

Year-To-Date

1 Year

3 Year

ISRG

10.92%

12.36%

23.63%

61.89%

MAKO

-12.36%

-11.13%

-66.64%

-10.84%

SYK

10.99%

12.58%

18.06%

19.15%

 

At $563.50, Intuitive Surgical is currently trading above all its averages.      

50-Day SMA

518.62

100-Day SMA

515.38

200-Day SMA

524.55

 

E = Earnings Have Been Strong

Annual earnings and revenue have increased since 2007. This isn’t rare, but it’s not common, either.

2007

2008

2009

2010

2011

Revenue ($)in billions

600.83M

874.90M

1.05

1.41

1.76

Diluted EPS ($)

3.70

5.12

5.93

9.47

12.32

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

446.70

496.80

495.20

536.50

537.80

Diluted EPS ($)

3.05

3.77

3.50

3.75

4.46

 

T = Trends Support the Industry

This industry is in its infant stages. Many people wish they could have invested in the Internet prior to its boom. It’s possible that a similar opportunity exists here. However, you still might be a little late to the party. As far as the industry’s relation to the economic environment goes, the United States is mixed, Japan is strong, and Europe is weak.

Conclusion

There is no doubt that Intuitive Surgical is a long-term success story. At this very moment, valuations are a little high. Intuitive Surgical has a Trailing P/E of 36.65, and a Forward P/E of 27.82. That doesn’t mean the stock will stop running higher, though. If you believe in the story, then the current valuation shouldn’t matter. The real concern should be the overall economic environment.

Overall, Intuitive Surgical is a long-term OUTPERFORM.

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