Intuitive Surgical, Inc. (NASDAQ: ISRG ) makes the da Vinci robotic surgical systems, the first to be cleared by the Food and Drug Administration for use in laparoscopic surgery on humans.
Surgeon are trained to use the system, and its imaging and equipment actually make their jobs easier. For example, da Vinci has a 3D HD imaging system that delivers a clear and magnified view of the patient's body.
It also has EndoWrist instruments , which are "designed to provide surgeons with natural dexterity while operating through small incisions. Most EndoWrist instruments are modeled after the human wrist, offering a greater range of motion than the human hand."
But, you don't just buy some da Vinci software and that's that. All of the equipment for the machine must be purchased, and the system needs to be maintained. This is the real bread and butter of the business for ISRG.
Just like with car sales, where dealerships don't make much profit on the purchase, the real money is made on the upkeep and servicing of those vehicle. So it is with Intuitive Surgical's da Vinci system as well.
You have new and replacement equipment, a service contract for software upgrades and hardware maintenance, and training to keep up with new features.
This is where the money is made and it's why ISRG stock has been doing so well. It has created a strong back-end to its unique front-end product. According to the company, instruments per procedure run $700-$3,500. Service contracts, however, run $80,000-$170,000 annually.
As of the end of March, there were more than 4000 systems sold ranging in price from $500000 to $2.5 million.
ISRG's Robotic Surgery System Is the Future
In 2016, more than 750,000 surgeries were performed with the ISRG da Vinci system, up 15% from the previous year and over 4 million procedures since Intuitive Surgical first began.
This is a very good business. Actually, the entire medical equipment business is doing well right now, and should continue to do so, regardless of how Trumpcare and Obamacare eventually get sorted out.
ISRG actually just received approval for another version of its top-of-the-line da Vinci Xi, the da Vinci X. It's priced around $1.3 million, compared to the $2 million price tag for the Xi. There is also an even lower-priced version, the Si.
The company's goal is to offer quality products at lower price points, which would allow ISRG to expand its operations (pardon the pun) into Europe, where hospitals are more cost-conscious when upgrading machinery.
Also, by creating a trade-in program for its equipment, ISRG has another shot at upgrading happy customers from lower priced products to its Xi.
ISRG stock is up 47% year to date and is certainly headed for the $1,000 mark very soon.
Louis Navellieris a renowned growth investor. He is the editor of five investing newsletters:Blue Chip Growth,Emerging Growth,Ultimate Growth,Family TrustandPlatinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool,PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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