ISRG - club_cafe - bivio Investment Clubs

ISRG

Laurie Frederiksen on

It looks like over 6 percent of your investment clubs own or have owned ISRG.

Anybody have any thoughts they'd like to share about them? Anybody have any experience with their robotic surgeries, either professionally or as a patient?

They recently guided lower on sales for the quarter they are going to be reporting on this afternoon. This caused their stock price to drop. Do you think the drop was overdone?

Laurie Frederiksen
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Leonard E. Douglass on

ISRG looks very volatile in the After hours trading, I just
saw a low of $383 reported at 16:47. Not much action or
price drop until after 16:30PM, then lots of volume and $378
at 17:00. This could be a buying opportunity, or a falling
knife!

I was privileged to tour a lab at Wayne State a couple of
years ago where they were working with Robotics including
the DaVinci system.

Talking with my ex neighbor who is a retired surgeon, his
opinion was the DaVinci system was much easier on the
surgeon because he was sitting down operating the console
instead of standing over the patient with a tool in his hand
working thru an incision.

Laurie Frederiksen on

Thanks for the perspective Len. I talked to a customer several years ago who had had a surgery done by a Da Vinci robot. He said it was great. Normally he would have had a recovery time of 4-6 weeks. He said he was back in action after only 3-4 days.

It looks like ISRG continued to go down after hours. It will be interesting to see what today brings.

I found this article to be a very informative look at the state of their business and future prospects. There are some very interesting comments on it now also. We might hit the $365 entry target the author says would be attractive:

Will Intuitives Quarterly Miss be Minimally Invasive to Its Long Term Growth

On Thu, Jul 18, 2013 at 5:03 PM, Leonard E. Douglass <pbco@comcast.net> wrote:

ISRG looks very volatile in the After hours trading, I just
saw a low of $383 reported at 16:47. Not much action or
price drop until after 16:30PM, then lots of volume and $378
at 17:00. This could be a buying opportunity, or a falling
knife!

I was privileged to tour a lab at Wayne State a couple of
years ago where they were working with Robotics including
the DaVinci system.

Talking with my ex neighbor who is a retired surgeon, his
opinion was the DaVinci system was much easier on the
surgeon because he was sitting down operating the console
instead of standing over the patient with a tool in his hand
working thru an incision.

Leonard E. Douglass on

Very interesting article! ISRG did test the $365 level this
morning, I believe it reached $355 and has recovered to $365
as I write this. Make that $370 now. Headline screaming
"S&P DOWNGRADES OPINION ON SHARES OF INTUITIVE SURGICAL TO
STRONG SELL FROM HOLD"

jednotakid on

Value Line downgrade

From: "Leonard E. Douglass" <pbco@comcast.net>
To: "club cafe" <club_cafe@bivio.com>
Sent: Friday, July 19, 2013 11:12:17 AM
Subject: [club_cafe] Re: ISRG

Very interesting article! ISRG did test the $365 level this
morning, I believe it reached $355 and has recovered to $365
as I write this. Make that $370 now. Headline screaming
"S&P DOWNGRADES OPINION ON SHARES OF INTUITIVE SURGICAL TO
STRONG SELL FROM HOLD"

Laurie Frederiksen on

So if things are so bad and their analysts are so knowledgeable, I wonder why Valueline and S&P didn't issue their "Strong Sell" ratings prior to the selloff.

On Fri, Jul 19, 2013 at 11:49 AM, <Jednotakid@comcast.net> wrote:

Value Line downgrade

From: "Leonard E. Douglass" <pbco@comcast.net>
To: "club cafe" <club_cafe@bivio.com>
Sent: Friday, July 19, 2013 11:12:17 AM
Subject: [club_cafe] Re: ISRG

Very interesting article! ISRG did test the $365 level this
morning, I believe it reached $355 and has recovered to $365
as I write this. Make that $370 now. Headline screaming
"S&P DOWNGRADES OPINION ON SHARES OF INTUITIVE SURGICAL TO
STRONG SELL FROM HOLD"

Leonard E. Douglass on

My experience with S and P analysis is that I observed many
years ago that their recommendations appeared to be about a
year out of date. Our guru in the BI Brighton Model Club
told us use the analysts data and ignore their
recommendations.

BTW I was buying ISRG yesterday on the way up.

Mark Robertson on

Len,

>My experience with S and P analysis is that I observed many years ago that
their recommendations appeared to be about a year out of date. Our guru in
the BI Brighton Model Club told us use the analysts data and ignore their
recommendations. BTW I was buying ISRG yesterday on the way up.

That could be right.

But I think the answer is better and simpler. S&P serves two worlds:
fundamental and technical. (I also believe that S&P is superior when dealing
with economically-sensitive, or cyclical, companies.)

Sometimes the two clash and one or the other dominates.

In the case of ISRG, S&P has a fair price of $458.80. At a current price of
$392.67, the price-to-fair value ratio is 392.67/458.80 = 0.866 or 86.6% --
suggesting that the current price is at a 13.4% discount to the fair value.
In other words, the fundamental camp at S&P would call it a "buy".

On the technical side, ISRG is currently (and probably temporarily) breaking
down. The relative strength and price momentum are in shards ... and the
institutional herd is fleeing, producing the over-reaction that our
community of long-term investors is likely to see as opportunity vs.
terminal illness.

The real enigma is that everybody could be "right" here. Huh? That's
right. Because most of us are focused on long-term time horizons, the
fundamental picture is pretty compelling after the speed bump and price
correction. The other "camp" has a shorter time horizon.

ISRG has recently joined the (40) most widely-followed companies at Manifest
Investing. We think that's a function of seeing a price swoon for a
compelling, sustainable company as opportunity and not fearful risk.

The long-term projected annual return is currently 13-14% with an excellent
quality rating and an 93 (A+) financial strength rank. The forecast is
based on 10-12% sales growth, net profit margins of 28-30% and a projected
average P/E ratio of 27x.

The field of opportunity for ISRG is finite but large and management has
demonstrated the capability to develop and maintain their earnings engine.
As the company chugs along through the current maturity phase, we'd expect
it to perform like one of those crucial medium-sized company workhorses in
our portfolios and we're not surprised to see it among the MANIFEST 40.

Mark Robertson
www.manifestinvesting.com

Laurie Frederiksen on

Thank you Mark for the excellent insight into the two schools of thought about stock prices and making investing decisions. It helps to keep those thoughts front and center because potential buying opportunities like this might be are often surrounded (as this one is) with a lot of fear and angst.

You mentioned you had a 13% 5 yer PAR using a 10-12% sales growth rate, a 28% margin and a 27 average P/E.

Short term, ISRG just reported a 9.6% sales growth and guided 0-7% for the current year, they only had a 27% net margin (and some of that was helped by some favorable tax issues), which was a bit lower than their average net margin for the past 14 quarters of 28.2%.

Seeing these things for the near future makes it understandable why the market is pricing them currently at a 22 P/E rather than the average of 34.32 for the past 5 years.

I made a 1 year projection of possible price using a 7% sales growth rate, a 25% estimate of net margin and an average P/E of 25 and came up with a possible 1 year price of $382.57. That meant it was looking pretty good to me at some points during the day on Friday. But it was my birthday and I was distracted. I think I'll wait a bit since it's now back up to 392 and I already own some. I think it's a good company. However, I can also understand that with the changes in healthcare coming up that their customer base has kind of a murky view into the future and is probably having a hard time making purchase decisions. I think once things settle down and we get through the transition, that they are a good company that provides a product that will be in demand in the future. I also like the growth in their service revenue from their installed base. That business model makes a lot of sense to me.

That could be right.

But I think the answer is better and simpler. S&P serves two worlds:
fundamental and technical. (I also believe that S&P is superior when dealing
with economically-sensitive, or cyclical, companies.)

Sometimes the two clash and one or the other dominates.

In the case of ISRG, S&P has a fair price of $458.80. At a current price of
$392.67, the price-to-fair value ratio is 392.67/458.80 = 0.866 or 86.6% --
suggesting that the current price is at a 13.4% discount to the fair value.
In other words, the fundamental camp at S&P would call it a "buy".

On the technical side, ISRG is currently (and probably temporarily) breaking
down. The relative strength and price momentum are in shards ... and the
institutional herd is fleeing, producing the over-reaction that our
community of long-term investors is likely to see as opportunity vs.
terminal illness.

The real enigma is that everybody could be "right" here. Huh? That's
right. Because most of us are focused on long-term time horizons, the
fundamental picture is pretty compelling after the speed bump and price
correction. The other "camp" has a shorter time horizon.

ISRG has recently joined the (40) most widely-followed companies at Manifest
Investing. We think that's a function of seeing a price swoon for a
compelling, sustainable company as opportunity and not fearful risk.

The long-term projected annual return is currently 13-14% with an excellent
quality rating and an 93 (A+) financial strength rank. The forecast is
based on 10-12% sales growth, net profit margins of 28-30% and a projected
average P/E ratio of 27x.

The field of opportunity for ISRG is finite but large and management has
demonstrated the capability to develop and maintain their earnings engine.
As the company chugs along through the current maturity phase, we'd expect
it to perform like one of those crucial medium-sized company workhorses in
our portfolios and we're not surprised to see it among the MANIFEST 40.

Mark Robertson
www.manifestinvesting.com

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