Will Intuitive Surgical Ever Pay A Dividend?

Up to date on Could 14th, 2022 by Felix Martinez

Advances in expertise have been huge in recent times, to say the least. That’s actually true in drugs as effectively, with innovation in medicines in addition to gear driving higher outcomes for sufferers, and income for the businesses that innovate extra shortly than opponents.

One such firm is Intuitive Surgical (ISRG), a medical gadget maker that has seen its inventory soar almost 900% previously ten years. It’s a large-cap inventory with a market capitalization now at a really spectacular $75 billion after one other robust run in 2021. Nevertheless, the inventory has pulled again 38% to this point this yr.

We’ve compiled a listing of over 400 large-cap shares within the S&P 500 Index, with market caps of $10 billion or extra. You possibly can obtain your free copy of the large-cap shares checklist, together with related monetary metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the hyperlink beneath:

Intuitive Surgical’s revenue base is kind of important and rising. However for income-focused traders, Intuitive Surgical will not be the precise alternative.

In spite of everything, the corporate has by no means paid a dividend. Nevertheless, because it matures in its development cycle and generates extra money, the corporate has the potential for a dividend elevate. On this article, we’ll look at Intuitive Surgical’s enterprise, development potential, and whether or not it would ever pay a dividend.

Enterprise Overview

Intuitive Surgical was based in 1995, and in simply 25 years, has gone from a startup with primarily no income to a large within the discipline of medical gadgets. The corporate designs, manufacture, and markets its da Vinci surgical methods and associated equipment and devices, primarily within the U.S.

The da Vinci machine is an all-in-one answer for performing quite a lot of surgical procedures because the surgeon is aided by expertise, moderately than relying upon a human to carry out the surgical procedure alone. Da Vinci’s purposes are quite a few, together with gynecology, urology, cardiothoracic, head and neck procedures, and extra. The uptake in da Vinci has been extraordinary over time, and this single product has turned Intuitive Surgical into the worldwide chief in medical gadgets that it’s as we speak.

The da Vinci machines carried out greater than 1,500,00 billion procedures worldwide final yr. The corporate expects a 15% development in procedures for its de Vinci machines for 2022. Nevertheless, the corporate’s put in base of almost seven thousand machines, in addition to its ever-growing buyer checklist imply that the backlog for postponed surgical procedures is strong.

Intuitive is on tempo for $6 billion in income this yr, which might be up from $5.7 billion in 2021.

Development Prospects

Regardless of its massive dimension, Intuitive Surgical has an immense quantity of development potential in entrance of it. The put in base of da Vinci machines has grown at double-digit charges for years, together with an 18% acquire in 2021. As well as, the variety of procedures the machine can do is increasing, that means that prospects are discovering larger utility within the machine.

This has led to extra procedures per machine, in addition to current prospects buying further machines.

Supply: Investor presentation

Da Vinci machines price between $0.5 million and $2.5 million to buy, relying upon configuration, which generated about $1.6 billion in complete income final yr. These are one-time purchases for the client, but it surely opens the door to important recurring income for Intuitive Surgical because the machine is utilized in procedures subsequent to buy.

The profitable recurring income is what helps to drive Intuitive Surgical’s development, as a better put in base of machines means a better degree of recurring income, which comes from servicing income, in addition to equipment and peripherals which can be used up throughout a process. Certainly, recurring income was 26% in 2021, which is extraordinarily engaging from an investor’s perspective.

Supply: Investor presentation

Intuitive Surgical isn’t resting on its laurels, nonetheless. The corporate continues to make use of the money it generates to put money into future development, together with enhancing its core da Vinci system, but additionally in creating new merchandise that serve associated wants.

Above is only a sampling of the expansion initiatives the corporate is engaged on, and whereas none of those is prone to ever attain something just like the success of da Vinci, diversifying away from a core product is all the time a good suggestion. We imagine that Intuitive Surgical’s development runway within the coming years is big, and undertaking income development within the low-double-digits yearly, with earnings-per-share development nearer to fifteen%.

The corporate’s most up-to-date earnings report confirmed development in comparison with prior quarters. Worldwide da Vinci procedures rose 19% year-over-year, reflecting what the corporate referred to as restoration from COVID-19. The compound annual development price between the primary quarter of 2019 and the primary quarter of 2022 was roughly 15%.

It additionally shipped 311 da Vinci methods, a rise of 15% from the 275 methods it shipped in the identical interval a yr in the past. Nevertheless, the put in base grew 13% year-over-year to six,920 methods as of the tip of the quarter.

Income was $1,487.7 million, a rise of 15.1% year-over-year, pushed by extra new system placements in 1Q2022.

Devices and equipment income was up 14.7% year-over-year to $810 million, which was pushed by the expansion in process quantity. Methods income was up 16.1% to $249.3 million, attributable to extra new machines being shipped.

Web earnings got here to $369.4 million, or $1.13 per share on an adjusted foundation, down from $435.2 million and $1.17 per share in the identical interval a yr in the past. Intuitive Surgical decrease its money place by an extra $217.7 million in Q1, and it now stands at $8.4 billion.

Aggressive Benefits

Intuitive Surgical’s aggressive benefit is apparent in that it’s the solely firm on the earth that makes a machine that’s as versatile and well-accepted amongst medical practitioners as da Vinci. Its unparalleled development previously 20 years is a testomony to its sturdy benefit.

Supply: Investor presentation

The corporate remains to be closely reliant upon the US for its income, however because the above image reveals, Intuitive Surgical has been busy increasing globally as effectively.

With an enormous market alternative for hundreds of latest da Vinci placements within the developed and creating markets of the world, we see this benefit as sturdy for the long run. There merely is just not a viable competitor to da Vinci at this level.

Will Intuitive Surgical Ever Pay a Dividend?

Given all of this excellent news in regards to the firm’s prospects and certainly its present place of energy, will it ever return money to shareholders by way of dividends? Intuitive Surgical actually has the flexibility to take action, which may’t all the time be stated relating to development shares. It has a money place of greater than $8.4 billion and generates a whole lot of tens of millions of {dollars} of more money every quarter.

Intuitive Surgical, nonetheless, has been investing that money to fund future development, because it has since its founding 25 years in the past. The corporate makes small acquisitions to purchase expertise it will possibly scale for future development, and it has been shopping for again a comparatively small quantity of inventory, largely to offset dilution from worker inventory awards.

We imagine the corporate will proceed this apply for the foreseeable future, that means it is vitally unlikely to pay a dividend quickly. Nevertheless, provided that the corporate is clearly producing rather more money than it must put money into the enterprise, we imagine the potential is there for Intuitive Surgical to pay a dividend.

We predict that is doubtless a few years away. However as soon as the put in da Vinci base reaches maturity, and barring an enormous strategic shift, we imagine the corporate can have rather more money than it will possibly profitably make investments, and will subsequently take into account paying a dividend.

Closing Ideas

Intuitive Surgical has been among the best medical gear shares to personal for years. The corporate’s development has been huge, and shareholders have reaped the rewards. Nevertheless, earnings traders would don’t have any motive to personal the inventory given it has by no means paid a dividend.

Whereas we don’t suppose that can change quickly, we do imagine the corporate will attain a degree the place it generates extra cash than it will possibly put money into the enterprise. The corporate has confirmed it’s going to return money to shareholders by way of share repurchases, so a dividend isn’t a giant stretch from there.

With a sturdy aggressive benefit, a really lengthy runway for development, and powerful free money circulation technology, we imagine we are going to see Intuitive Surgical mature within the years forward, and probably start paying a dividend to shareholders.

See the articles beneath for evaluation on whether or not different shares that at the moment don’t pay dividends will at some point pay a dividend: