intuitive surgical came public about two decades ago and is currently up more than 16 000
for its early investors but is the robotic surgical kingpin still worth investing in today
let's run it through our frameworks to find out my name is Brian Feroldi and my name is Brian Stoffel
thanks to quarter for sponsoring today's video here is the framework that brian Stoffel uses to
invest here is the framework that i use to invest brian for those that are unfamiliar
what does intuitive surgical do intuitive surgical is the leader the pioneer really
of robotic surgery and the whole reason that robotic surgery is so important and growing
so fast is that it allows for procedures to be performed in a minimally invasive way there's less
bleeding there's less cutting and when that's the case patients are able to recover faster
they have better outcomes they spend less time in the hospital and usually everyone involved
saves money because of it one of my favorite things about this company is its business model
intuitive sells these huge expensive multi-million dollar machines but that is just the start of the
company's revenue the next revenue stream i think is actually the most important it is the largest
and those are the instruments that need to be replenished after each procedure these high
margin instruments are ordered over and over again every time the procedures grow for the
company the third way this company makes money is by servicing its machines every time the company
gets one of its systems placed in the fields the hospitals sign a contract to have it serviced
annually that's recurring high margin revenue for intuitive surgical so how they done well i think
the most important metric that investors can watch is procedure growth because again every time those
procedures grow those instruments the high margin instruments are growing along with it the growth
has been very impressive obviously 2020 was a bit of an anomaly because people weren't going into
the hospitals for these procedures which are necessary but can be put off for some time and
that's what we saw i expect that we'll see them re-accelerating as we move forward let's start
with your framework brian the company's mission statement is to expand the potential of physicians
to heal without constraints what do you think i love it i think it's simple it's definitely
inspirational and as we'll get to in a minute it is optional i agree moving on to the moat do you
think the company benefits from the network effect i do but it'll take a minute to explain why as
more doctors start using the davinci platform they can tinker more and as they tinker more
they can experiment with new procedures if you look at that green section it's accounted for a
large part of the company's growth over the past five six seven years that's u.s general surgery
that's basically any procedure that doesn't fall under urology or gynecology and they're growing
by 32 percent per year i believe that as more doctors tinker with new procedures the company
can get fda clearance for those procedures to be adopted more widely and as that happens that
draws in even more doctors because they realize that they can use it for all these different
procedures you could also make the argument as a network effect from the physician side too
once you get trained on this system you can put on your resume that you are a da vinci certified
physician you could also make this an argument that there's a network effect from the physician
side too once you became trained on how to use the da vinci system to perform surgical procedures
you become more attractive to employers around the world so there is a network effect there too
all right do we think there are switching costs involved i do and it's actually a nice segue
from what you just covered brian doctors spend years working on this platform when that's the
case they're loath to switch to another one but this involves hospitals too if a hospital buys a
machine outright it costs over a million dollars when you put that amount of sunk costs into a
machine you are sure that you are going to use it in the future so i believe both for physicians and
hospitals there are very high switching costs i couldn't agree with you more do we think that
intuitive benefits from a low-cost advantage i don't think it really comes into play no i
think they're probably the low-cost producer of these robotic surgical systems but like
you i don't think it's much of a moat how about intangibles absolutely this company definitely
has brand value if you look at the numbers we see that they've got all the peer review articles over
seven million procedures performed globally and 5500 machines distributed throughout the world
there is definite brand value here i have personally driven by hospitals and seen signs
on the road that say robotic surgery davinci systems performed here i think the brand name
da vinci does resonate within the medical and patient communities moving on to optionality what
do you see brian well i don't necessarily see them getting out of minimally invasive surgery
but if you look at the applications for their technology there's a ton they started with urology
they moved on to gynecology after that they worked on hernia repairs they've worked on things like
bariatric procedures they've even got something that helps detect lung cancer their ion system now
what's next i don't know but as we talked about before more tinkering will lead to more procedures
in the future i totally agree i think the company has a tremendous amount of optionality built into
it moving on to financials what do we see as of june 30th this is a really strong company
they've got over six billion dollars in cash they've got absolutely no long-term debt and
their free cash flow is growing very quickly it's nearing two billion dollars if hard times were to
hit this would help them get stronger relative to any competition they might have financially
this company is in impeccable shape moving on to concentration any risk to be aware of
none that anyone can see all right skin in the game what do we see for glass door ratings dr
gary guthart is one of the highest rated ceos among publicly traded companies he's done a
phenomenal job employees give stellar reviews for the company great how about the founder well the
founder of intuitive surgical is dr frederick mole he stayed with the company for a while but he's
more of a serial entrepreneur and he's now working with johnson johnson so he is no longer involved
how about ownership what do we got well because this is not a founder-led company and it's a
company that's been around for 20 years ownership is actually quite low it's less than one percent
that being said the value of what all the insiders own is about a billion dollars as of this taping
but that is going to be a mark against the company on my framework well before we get to the final
scores we want to give a shout out to our sponsor quarter with quarter you get frictionless access
to conference calls investor presentations transcripts and earnings reports from markets
around the world straight to your pocket for no cost let me say that again quarter is free quarter
now covers companies from 15 markets around the world and more are being added all the time and
corta just rolled out a new feature that allows users to leave reactions to conference calls while
they're listening that helps them to have their voice heard visit the app store of your choice
today and give quarter a try for free that's q u q-u-a-r-t-r thanks quarter for sponsoring
the video brian let's start taking this company to the anti-fragile framework what do you give it for
mission i give them full credit it's checked all three boxes great moving on to moat well we've got
the network effect i didn't give a full point for switching costs but most and i gave them a point
for their brand value that comes out to four and a half points great score optionality again i don't
see them moving out of robotic surgery but there's so many different ways it can be applied so i gave
them two and a half out of three points moving out to financials really strong balance sheet
cash flow full point in concentration nothing to worry about zero is the best you can do glass
door ratings plus one founder dr moe's no longer there zero and ownership i do take a point off
being a little harsh probably but it's below one percent for consistency i understand why you did
this but almost having a billion dollars on the line i think the ownership's okay but that gives
it a total score of 10 which is definitely in your robust category yes it should be no surprise this
is the stock that i own in my own portfolio let's move on to my framework so financially i gave this
company a 16 out of 17. for potential i only gave it 11 out of 18. part of that is because operating
leverage is behind this company so profit growth isn't going to grow much faster than revenue
moving forward for the quality of quality of customers very high i gave them a 7 out of 10.
revenue quality is outstanding too i gave it an 8 out of 10. management and culture was
very good score 11 out of 14 and not only has the stock thumped the market over the last five years
and since inception this company has a history of beating its own expectations and occasionally
using its huge cash hoard to buy back stock for the gauntlet i subtracted zero points there are no
major risk here's that i saw add all that together an intuitive surgical gets an 82 on my quality
score this is a very high quality business yes and i'm almost a little bit surprised that it's only a
10 online but as you said for consistency's sake we took points off for the ownership if they got
a point for it it would have been a 12 it would have been in that green section either way both
you and i agree this is a very high quality company that we have each own for a long time
so we're going to hold ourselves accountable by putting this into our bullish scorecards
thanks so much for watching we hope you learned something we'll see you next time brian's out