Following my October 20, 2021 Intuitive Surgical, Inc. stock analysis, the share price jumped from my ~$336 purchase price to ~$365 on November 8. Fortunately, the share price has recently pulled back.
As far as I can tell, no news has led to this price fluctuation.
With the share price having retraced to ~$340, I have added to my position in a 'Core' account in the FFJ Portfolio.
The purpose of this brief post is merely to disclose this additional purchase.
Intuitive Surgical - Stock Analysis - Valuation
In my October 20, 2021 post I indicated that ISRG had generated $3.63 in diluted EPS over the first 3 quarters of FY2021. If Q4 is similar to the prior 3 quarters then FY2021 diluted EPS will likely be ~$4.75 - $4.90. Using ISRG's October 19, 2021 closing share price of ~$336, the forward diluted PE is ~68.6 - ~70.74.
Based on the ~$336 share price and the adjusted diluted EPS estimates from the brokers which cover ISRG, the following were the adjusted diluted PE levels:
- FY2021 - 18 brokers - mean of $4.89 and low/high of $4.50 - $5.06. Using the mean estimate, the forward adjusted diluted PE is ~68.7 and ~66.4 if I use $5.06.
- FY2022 - 18 brokers - mean of $5.52 and low/high of $5.17 - $5.74. Using the mean estimate, the forward adjusted diluted PE is ~60.9 and ~58.5 if I use $5.74.
- FY2023 - 18 brokers - mean of $6.40 and low/high of $5.69 - $6.91. Using the mean estimate, the forward adjusted diluted PE is ~52.5 and ~48.6 if I use $6.91.
My November 22 purchase is at ~$340. Using this purchase price and the current adjusted diluted EPS estimates from the brokers which cover ISRG, the following adjusted diluted PE levels are now:
- FY2021 - 16 brokers - mean of $4.96 and low/high of $4.60 - $5.42. Using the mean estimate, the forward adjusted diluted PE is ~68.5 and ~62.7 if I use $5.42.
- FY2022 - 16 brokers - mean of $5.57 and low/high of $5.29 - $5.84. Using the mean estimate, the forward adjusted diluted PE is ~61 and ~58.2 if I use $5.84.
- FY2023 - 15 brokers - mean of $6.45 and low/high of $5.96 - $7.08. Using the mean estimate, the forward adjusted diluted PE is ~52.7 and ~48 if I use $7.08.
Despite the slightly higher share price on this recent purchase, the valuation based on broker estimates is relatively unchanged from that on October 20.
Intuitive Surgical - Stock Analysis - Final Thoughts
There is no denying that ISRG's valuation is rich. This is, however, a high-growth business. Annual revenue has risen from $1.757B in FY2011 to $4.159B for the first 3 quarters of FY2021; I anticipate FY2021 revenue will be ~$5.5B.
What is more remarkable about this growth is that ISRG's business has been negatively impacted by COVID-19. In addition, ISRG's revenue has been predominantly from its Da Vinci suite of products.
In Q1 2019, the FDA cleared ISRG's Ion endoluminal system to enable minimally invasive biopsies in the lung; this Ion system extends the company's commercial offering beyond surgery into diagnostic procedures.
The rollout of the Ion system in the U.S. is progressing well, and ISRG is continuing to gather additional clinical evidence. As of September 30, 2021, it had only placed 98 Ion systems in the US and the plan is to seek clearances for Ion outside the US over time. When this does occur, I envision a significant increase in ISRG's revenue, profitability, operating cash flow, and free cash flow.
I am slowly acquiring ISRG shares because I want to be 'ahead of the curve'. In doing so, however, I am acquiring richly valued shares but I am prepared to assume this 'valuation' risk.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long ISRG.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
