The Pentagon Simply Went All-In On Intuitive Surgical's Medical Robots

If you hear the term "medical robots," what comes to your mind first?

Intuitive surgical...

When it comes to pure-play clinical robotics organizations that make robots to help surgeons perform their surgical procedures, Intuitive Surgical is the one to beat (rivals Mazor Robotics and Mako Surgical having already been devoured and subsumed into broader med-tech groups).

Because it turns out when the Pentagon thinks about investing in surgical robots, Intuitive Surgical is the one they call, too.

The U.S. Defense Logistics Agency earlier this month announced it would be awarding a 5-year, $420 million contract to Intuitive Surgical for the provision of an unspecified number of surgical robots, as well as the "contraptions and their related add-ons" essential to operating them.

A hundred and five agencies were considered for the contract, but Intuitive Surgical beat all of them. And it could keep beating.

Besides the fact that children the contract in question was described as a one-off "five-year contract and not using a choice period," it definitely mirrors a previous contract awarded in March 2015 that also became a "five-12 month contract without alternative periods."

Judging from the lack of mention of Intuitive Surgical on the Pentagon's contracts web page, that 2015 award seems to have been the first time that the Pentagon awarded a big contract to Intuitive Surgical. But its variety of looks to me like a sample is forming right now -- if you can name two 55-year contracts, spaced five years apart, a "sample."

 

And it looks to me like sooner or later, Intuitive Surgical could be able to rely on the Pentagon proposing an appreciable amount of recurring salary to its business.

Believe it: in response to information from S&P International Market Intelligence, Intuitive Surgical accumulated less than $4.5 billion in total earnings from all valued clientele. So $420 million, spread over 5 years, works out to just below 2% of Intuitive Surgical's revenue movement.

In response to business filings, "no single customer accounted for more than 10% of [Intuitive Surgical's] earnings right through the years ended December 31, 2019, 2018, and 2017." The administration wasn't specific as to the degree of "concentration" of sales among consumers, however, according to that one line, it seems likely that the Pentagon -- at 2% of revenue -- is now one of Intuitive Surgical's highest clients.

What skills are required by intuitive surgical buyers?

Here is a fine factor.

After it burst onto the scene as a disruptor of the labor-intensive container of surgical procedure, Intuitive Surgical has produced:

• Forty-five,000% total earnings increase over the remaining two decades.
• 15 straight years of profits and effectiveness, and
• It has been 15 straight years of high quality work generating free money.

This is all in the past, however. Looking ahead, S&P Global Market Intelligence estimates that buyers can expect to see a modest but respectable increase in costs below 10% from Intuitive Surgical.

As this enterprise transitions from business disruptor into a business stalwart, securing reliable, well-heeled customers like the Pentagon may well be key to maintaining consistent profits and assisting the stock valuation.

The next huge factor

In the meantime, it could be time for traders to begin scanning the horizon for an enterprise that could disrupt Intuitive Surgical itself. In any case, at a valuation of 50 times current income, but a boom price of under 10%, there may be an argument to be made that Intuitive Surgical's glory days (as an investment) are behind it.

So where should we still appear to be?

We have been following the upward push of the robotics industry for some years now. As an instance of how essential robots are becoming, in medicine and elsewhere, and the way fast this trade is growing, it's worth highlighting that within the Pentagon's 2015 surgical robotics award, 35 groups competed for the contract that Intuitive Surgical eventually won. 5 years later, one hundred and five separate businesses competed for the contract (which Intuitive Surgical also won).

Word the difference?

Yes, in each and every case, Intuitive at last won the contract. But in only 5 years, the number of medical robotics businesses competing against it tripled. It truly is fairly amazing!

Therefore, some or even more of these 70 newly formed corporations that have arrived on the scene could eventually issue an IPO. This gives us the opportunity to take part in another boom story as big as the one Intuitive Surgical has already become.