“GE’s executives said they think funding will continue to be a problem for clinics and hospitals.” However, since then the company’s stock regained much of the last value until September 19, 2008 where after it hasn’t regained its past glory.
In the past, Intuitive's higher valuations were driven by its monopoly and rapid growth in a market for motion-capture robots commonly used for prostate-removal surgery and hysterectomies. Called "da Vinci," the robots sold for an average price of $1.3 million in the fourth quarter of 2008.
Intuitive's exposure was confirmed Jan. 7, 2009, when the company issued preliminary fourth-quarter results that reflected softened da Vinci demand and 2009 sales guidance that reflected slower growth.
Intuitive makes money from selling new machines, the instruments and accessories used during surgery and service for equipment. The company considers procedures the leading indicator of business strength, but system sales are still watched closely. At this point of time, the financial crisis is still severe. Hospitals and clinics still are hurting and curtailing capital expenditures. Patients still want their surgeons to use ISRG’s robot, which increases their precision and, in some studies, produces better outcomes for patients. The payback on the $1.3 million device for hospitals is relatively slow, however, making it a less than must have item for hospitals and clinics these days.
Most of the hospitals want the system, but don't need to purchase one right now. Given the current economic environment most hospitals which are potential buyers of the system will simply defer the purchase to a later rainy day. After the fourth quarter, Intuitive projected that revenue pegged to system sales would likely be flat this year, although Chief Executive Lonnie Smith noted at the time that challenging economic conditions made forecasts tough.
The challenging environment for hospitals came to fore on Monday when the Ohio Hospital Association released results from a statewide survey detailing hospitals' financial woes. The association noted that in the last six months, 29% of survey respondents had canceled or delayed construction projects or capital improvements, which include purchases of new equipment.
The survey also highlighted expectations for upcoming layoffs and the financial strain created by fewer insured patients. However, the views for Intuitive aren't all that bad. Wachovia analyst Michael Matson noted that strong interest in new machines among surveyed hospital-purchasing managers suggested U.S. sales over the next 12 months could be above his estimates. He cautioned that this was based on a very small sample size.
Intuitive Surgical ended the fourth quarter of 2008 with 1,111 da Vinci systems installed worldwide. In 2009, the company may not be able to sustain da Vinci systems sales growth. Given this assumption, the average 2009 sales outlook among analysts surveyed by Thomson Reuters is $931.2 million, but estimates range from $853.5 million to $1 billion.
This year, analysts are forecasting earnings growth of -2.9% over last year. Currently the stock is trading at $101.47, an indicative P/E of 19.84. As per my calculations, the stock’s intrinsic worth is in the range of $191 to $222. So, even though the short term outlook is pessimistic due to weak sales numbers, the long term outlook on the company remains still bullish. Over the next five years, the analysts that follow this company are expecting it to grow earnings at an average annual rate of 18.0%. So the stock is a good buy to accumulate on price declines over the next few months.
