Here's Why the Best Is Yet to Come for Intuitive Surgical, Inc.

By Keith Speights Markets Fool.com

For several years, it looked like Intuitive Surgical (NASDAQ: ISRG) might be past its prime. The robotic surgical system maker's stock experienced a malaise throughout much of the period between 2012 and late 2015.

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Now, however, Intuitive Surgical is on a roll. Its share price is up close to 20% so far in 2017. Could the best be yet to come for Intuitive? I think so.

Image source: Intuitive Surgical.

Trends in its favor

Most people think about the aging of the baby boomer generation as a key demographic trend. And it is. However, millennials (individuals born between 1981 and 1997) have surpassed baby boomers as the largest generation in the U.S.The aging of both groups should benefit Intuitive Surgical.

Hysterectomy ranks as the top surgical procedure performed using Intuitive's da Vinci robotic surgical system. More than 40% of da Vinci procedures performed in the U.S. last year were hysterectomies. The average age of American women who have hysterectomies is 42. Many in the millennial generation will reach this age in only a few years.

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Intuitive Surgical's second most performed surgical procedure is radicalprostatectomy for patients diagnosed with prostate cancer. The average age of American men who are diagnosed with prostate cancer is 66. Some baby boomers have already reached the prime age for developing prostate cancer, but most aren't quite that old yet.

It's not just demographic trends that are working in Intuitive Surgical's favor. The company generated 71% of total revenue in 2016 from recurring sales of instruments, accessories, and services. This percentage has steadily increased in recent years.Intuitive's huge recurring revenue provides it stability and flexibility that many other companies don't enjoy.

Proving value

While Intuitive Surgical's bread and butter is in the gynecology and urology markets, general surgery is the company's fastest-growing specialty in the U.S. Hernia repair is the most important driver of that growth for one primary reason: Intuitive has proven its value proposition for the procedure. Studies have shown that that average hospital stay for patients who underwent surgeries with da Vinci were 2.5 days shorter than others with similar readmission rates

One market that is still in its early stages for Intuitive is thoracic surgery. Clinical studies have shown improved outcomes for patients who underwent thoracic surgery with da Vinci compared to patients who hadopen and video-assisted thoracic surgery.

The more Intuitive Surgical can prove its value, the more it will sell its systems. And there are plenty of types of surgical procedures remaining for the company to address where da Vinci could potentially be better than conventional surgery.

Intuitive's innovation should help accomplish this goal. Enhanced imaging helps surgeons identify structures during surgery. Sensors on da Vinci instruments provide real-time feedback.The company's joint venture with Fosun Pharma to develop robotic-assisted catheter-based medical devices could also open up new doors.

International opportunities

More than 65% of da Vinci systems are installed in the U.S. As a result, Intuitive Surgical still makes most of its money here. This highlights the company's opportunity for growth in international markets.

Intuitive Surgical should be able to obtain significant more growth in Asia in the future. Just over 500 da Vinci systems are installed in Asian countries, but the populations (and, therefore, number of surgical procedures performed) in these nations are huge.

The company has experienced strong procedure growth in Japan and China. As Intuitive continues to demonstrate its value, it should be able to open up more of the Asian market.

What about competition?

While all of these factors should work to Intuitive Surgical's advantage, could they help other companies even more? So far, Intuitive hasn't faced significant competition for da Vinci. That could soon change, however.

Medtronic (NYSE: MDT) plans to launch its first robotic surgical system as early as next year. Its system could compete head-to-head against da Vinci in several surgical procedures. The biggest challenge for Intuitive could come from Medtronic's pricing. The big medical device company has stated that it intends to make robotic surgeries less expensive.

Competition from Medtronic and perhaps others could end up being a good thing for Intuitive Surgical over the long run, though. It should spur the company to innovate and prove the value for its technology even more than in the past. And if that happens, the best days for Intuitive Surgical lie ahead.

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