Here's What Allowed This "Cutting-Edge" Stock to Jump 9% in January

By Sean Williams Markets Fool.com

Image source: Intuitive Surgical.

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What happened

Shares of Intuitive Surgical, Inc. (NASDAQ: ISRG), a cutting-edge developer of robotic surgical system and accessories for surgeons, leaped 9% in January, according to data from S&P Global Market Intelligence. The reason for the significant move higher in Intuitive Surgical's share price can be traced to the release of its fourth-quarter and full-year earnings results on Jan. 24.

So what

For longtime shareholders, Intuitive Surgical's Q4 report could be accurately summed up as "business as usual." Worldwide procedures for its proprietary line of da Vinci robotic surgical systems grew by 15% in the fourth quarter, with U.S. general surgery growth and worldwide urologic procedures leading the charge. In total, it also wound up shipping 163 of its flagship systems, up five from what it shipped in Q4 2015.

Altogether, revenue grew by 12% to $757 million from $677 million in the prior-year quarter, which is consistent with the company's previously issued guidance before releasing its Q4 report. Systems revenue from the shipment of its da Vinci systems increased 2% to $236 million, while instrument and accessory revenue led the way with 19% sales growth to $386 million. Service revenue wasn't too shabby, either, up 12% to $135 million.

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More importantly, net income and adjusted EPS for the quarter increased modestly to $242 million and $6.09, respectively, from $224 million and $5.89 in Q4 2015. The $6.09 in EPS wound up topping Wall Street's expectations by $0.10 per share.

Intuitive Surgical also helped its cause by entering into an accelerated share repurchase (ASR) agreement with Goldman Sachs. The ASR program will be good for a $2 billion purchase. Before its ASR initiation, the company had roughly $3 billion in buyback authorizations at its disposal. Buying back common stock can help improve EPS by lowering the outstanding share count, thus making a company appear more attractive on a fundamental basis.

Image source: Getty Images.

Now what

What Intuitive Surgical's Q4 results demonstrate is the competitive advantage it brings to the table.

The beauty of Intuitive Surgical's business model is that there's minimal competition, and it's set up a sort of razor-and-blades model that'll allow it to prosper for years to come. Though its machines range in cost from $600,000 to $2,500,000, it's the recurring revenue that allows the company to grow so consistently. An annual service agreement, training, and instruments and accessories that are needed with each procedure make it far too costly and time-consuming for hospitals and surgeons to want to switch away from the da Vinci system. Once Intuitive Surgical lands a customer, it tends to hang on to them.

Admittedly, the company also cautioned Wall Street that procedural growth would probably slow in 2017 as hospital trends change and competition in the robotic space increases. Nonetheless, Intuitive Surgical maintains the lion's share of the robotic-surgery market, with 3,803 da Vinci systems installed as of Sept. 30, 2016, and should therefore retain a lot of pricing power and rapport with physicians and hospitals. Despite creeping up on $700 a share, the company still looks attractive for long-term-minded investors.

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Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.