Intuitive Surgical, Inc. Ups Its Buyback Program. Does It Matter?
Image source: Intuitive Surgical.
While shares of Intuitive Surgical (NASDAQ: ISRG) have fallen about 7% since the election of Donald Trump, the past two years have actually treated shareholders quite well. Since bottoming out in mid-2014, the company's stock has advanced 80%.
And yet, management clearly thinks that the stock is a steal: It recently increasedits buyback program from $1 billion to $3 billion. While that doesn't mean all that cash will be spent immediately, it does mean that the share count should be moderating or heading south.
Below, I'll discuss what this program means, and why it matters to shareholders.
A great problem to have
To put it simply, Intuitive Surgical has become a cash cow. While the past few decades were spent reinvesting in the business, the success of the company's daVinci Xi machine and platform -- along with hernia operations emerging as a major driver of growth -- has changed things quickly.
Since bottoming out in 2014 when hospitals were tightening their budgets for the implementation of the Affordable Care Act, look at how Intuitive's stash cash has grown.
Quickly Growing War Chest at Intuitive Surgical
What it means for investors
ISRG Shares Outstanding data by YCharts.
If the entire repurchase program were completed at once (which it won't be), it would retire about 4.7 million shares. That would increase the value of every share of the company by about 12%. That's not a small amount, and the number goes directly to the bottom line as EPS instantly increases.
But we have to weigh that amount against the typical stock-based bonuses that are granted. Over the past nine quarters, shares have been diluted by just under 1% per quarter. In the end, that means that if the repurchase is completed within the next two years, the net result would be a reduction by about 2.25 million shares.
At the end of the day, that means that each share's value increases about 6%. While shareholders would probably like to have seen a more substantive use for the cash, it's no doubt nice to see that it will be flowing to the bottom line over the next few years.
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Brian Stoffel owns shares of Intuitive Surgical. The Motley Fool owns shares of and recommends Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.