Reasons I decided to go long on ISRG

- ISRG had a blow out quarter. Sales increased 60 percent to $72.1 million from $45.2 million, as sales of products, particularly its da Vinci surgical system and services surged. ISRG sold 40 da Vinci systems, up from 25 a year ago, driving system revenue to $41.3 million from $27.1 million.
- The company consistently has been under-promising and over-delivering.
- The margins stand at about 67%. Even though they are expected to drop to 65% (because of
the introduction of the new S system), they are expected to bounce back to the 67%-68% range in the second half of the year.
- The news media has reported that ISRG has projected 30%-35% revenue growth for next year. This is not actually completely correct. On the last conference call, the ISRG management said that 30%-35% growth rate would apply to the sales of the actual da Vinci units. As far as the revenues for the parts and service (soon to become more than half of their business), it was projected to grow at 50%-55% next year.
- The company did indicate there could be some delays in purchasing decisions from their customers in the current quarter because of introduction of the new da Vinci S system. It is hardly any negative news, as this just gives their customers an extra option in choosing the right system. Both of their systems compliment each other and provide unique benefits to their customers (for example: the S system allows a quicker set-up for smaller hospitals, also it has an interactive display, etc.).
- Several hospitals already purchased multiple systems. This fact shows that the math “one hospital = one system” no longer applies for the valuation purposes.
- As more systems are sold, the install base increases which provides for constant revenue streams (parts and service) per single sold system.
- ISRG gets about $2000-$2500 per each performed procedure. The use of the da Vinci system does not increase the surgical procedure cost for patients, as much shorter hospital stays save the money.
- ISRG is expanding into the areas of gynecology, wider use for cardiac procedures, and the general surgery.
- ISRG is the only company engaged in the area of robotic surgery at such high level.
Because of their extended patent portfolio and the years of research in overcoming unique challenges in mechanical engineering as it applies to the robotic surgery, it is highly unlikely that any serious competition is possible in the next 5-10 years. On top of this, ISRG has already obtained FDA approvals for a variety of surgical procedures. Any competition would have to start from square one.
- The da Vinci systems are not only purchased for the use in North America. 71 systems are
already bought and installed in Europe. Several more have been sold to other parts of the world. The increased acceptance of the robotic surgery throughout the world should provide unlimited opportunities for ISRG. Again keeping in mind that each sold system provides a constant revenue stream.
- There is been several studies performed that show that the robotic surgery provides for such benefits as the increased procedure precision and decreased blood loss.
- As the “word of mouth” spreads, patients will start increasingly demand to be operated
upon with the use of the da Vinci system. This is just simple reality. Ironically, some of the ISRG shorts maybe just some of those people…

 

its a good company for sure

will be awhile until long is stable to go

probably a month or two.