Intuitive Surgical Inc Valuation – July 2016 $ISRG

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Intuitive Surgical Inc (ISRG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Intuitive Surgical, Inc. (Intuitive) designs, manufactures and markets da Vinci Surgical Systems, and related instruments and accessories. The Company’s da Vinci Surgical System consists of a surgeon’s console, a patient-side cart and a vision system. The da Vinci Surgical System translates a surgeon’s hand movements, which are performed on instrument controls at a console, into corresponding micro-movements of instruments positioned inside the patient through small incisions or ports. The da Vinci Surgical System provides its operating surgeons with control, range of motion, tissue manipulation solution and three-dimensional (3-D), high-definition vision. It allows surgeons to work through the small ports enabled by minimally invasive surgery procedures. Its da Vinci Surgery utilizes computational, robotic and imaging technologies. It focuses on five surgical specialties: gynecologic surgery, urologic surgery, general surgery, cardiothoracic surgery, and head and neck surgery.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of ISRG – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $25,972,340,682 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.31 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 203.08% Pass
6. Moderate PEmg Ratio PEmg < 20 43.29 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.50 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 5.31 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ISRG value chart July 2016

EPSmg $15.68
MG Growth Estimate 5.21%
MG Value $296.65
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $227.36
MG Value based on 0% Growth $133.28
Market Implied Growth Rate 17.40%
Current Price $678.84
% of Intrinsic Value 228.83%

Intuitive Surgical, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $11.64 in 2012 to an estimated $15.68 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.4% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Intuitive Surgical, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

ISRG charts July 2016

Net Current Asset Value (NCAV) $48.06
Graham Number $225.05
PEmg 43.29
Current Ratio 5.31
PB Ratio 5.50
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $2,406,400,000
Total Current Liabilities $452,900,000
Long-Term Debt $0
Total Assets $5,306,300,000
Intangible Assets $332,600,000
Total Liabilities $555,900,000
Shares Outstanding (Diluted Average) 38,500,000

Earnings Per Share History

Next Fiscal Year Estimate $18.05
Dec2015 $15.54
Dec2014 $11.11
Dec2013 $16.73
Dec2012 $15.98
Dec2011 $12.32
Dec2010 $9.47
Dec2009 $5.93
Dec2008 $5.12
Dec2007 $3.70
Dec2006 $1.89
Dec2005 $2.51
Dec2004 $0.67
Dec2003 -$0.41
Dec2002 -$1.02
Dec2001 -$0.94
Dec2000 -$1.56
Dec1999 -$7.62
Dec1998 -$16.28

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $15.68
Dec2015 $14.44
Dec2014 $13.63
Dec2013 $13.96
Dec2012 $11.64
Dec2011 $8.75
Dec2010 $6.38
Dec2009 $4.50
Dec2008 $3.45
Dec2007 $2.30
Dec2006 $1.31
Dec2005 $0.73
Dec2004 -$0.32
Dec2003 -$1.31
Dec2002 -$3.00
Dec2001 -$4.42
Dec2000 -$5.81

Recommended Reading:

Other ModernGraham posts about the company

Intuitive Surgical Inc Valuation – January 2016 Update $ISRG
Intuitive Surgical Inc. Analysis – September 2015 Update $ISRG
Intuitive Surgical Inc. Analysis – September 2015 Update $ISRG
Intuitive Surgical Analysis – June 2015 Update $ISRG
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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