Intuitive Surgical: Plenty of Room to Grow

When David Gardner first recommended Intuitive Surgical (NAS: ISRG) to Motley Fool Rule Breakers members in 2005, the stock was trading at $44.17.

Today, the stock trades for about $435, making it almost a 10-bagger for those early investors. Despite its meteoric rise, there is still plenty of room for investors who are just joining the party. Intuitive's minimally invasive da Vinci surgical system continues to find increased acceptance for more clinical applications and see increased use, translating into top- and bottom-line growth.

In its latest 10-Q, the company reported that the number of surgical procedures performed with its da Vinci system for the three months ending Sept. 30, 2011, increased approximately 30% year over year.

The big growth engine
The increased number of procedures is certainly good news for shareholders, but the real growth potential is in the adoption and use of the da Vinci beyond just hysterectomies and prostatectomies. Those two surgical procedures constituted about 75% of all the da Vinci procedures performed in 2010. Yet in the U.S. alone, Intuitive has FDA clearance for another dozen surgical applications and worldwide, the system has reportedly been used to perform nearly 100 different types of surgeries. Last year, there was a 50% increase in these other procedures, but considering that still only amounts to about a quarter of all da Vinci procedures performed, growth (and profit) opportunities still abound.

Growing on both sides of the pond
The majority of prostate surgeries performed in this country are now done with da Vinci and as a result the year-to-year volume of da Vinci-performed prostatectomies in the U.S. was relatively flat. But that's not the case overseas.

In fact, Intuitive credits the overseas market (Europe in particular) as the reason for the rise in the overall number of da Vinci prostatectomies in the past year. Increased adoption leads to more system sales. Compared to the same period last year, international revenue grew as a percentage of total revenue from 17% to 21%. This growth was primarily due to higher European sales driven by the increased use of the da Vinci in prostatectomies.

While the company may start to see some saturation in one of its core procedures domestically, its use in prostatectomies is just beginning to take hold abroad. I can easily envision Intuitive replicating this blueprint with its other core procedure, the hysterectomy.

More procedures means more recurring sales
Intuitive reported last month that its quarterly instruments and accessories revenue increased by 38% and service revenue was up 25%. With increased adoption and use of the system, these recurring instrument and accessory sales, which wear out with use in surgery (as well as the higher-margin service contract renewals) should continue to trend upward.

Best in class
Analysts project about an overall 20% annual growth rate for the company. While skeptics may think this projected growth rate indicates that the company's glory growth days are over, it far exceeds those of other established companies in the medical technology and devices space such as Stryker (NYS: SYK) , Medtronic (NYS: MDT) , and Boston Scientific (NYS: BSX) .

The party is far from over for Intuitive or its shareholders. In fact, it may be an investor's best bet in this space.

At the time thisarticle was published Marthe LaRosilierehas no position in any of the companies mentioned in this article. The Motley Fool owns shares of Medtronic.Motley Fool newsletter serviceshave recommended buying shares of Stryker and Intuitive Surgical. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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