We believe Intuitive surgical stock (NASDAQ
Looking at stock returns, both ABT and ISRG, down more than 25% this year, have underperformed the broader S&P 500 index, down 16%. There’s more to the equation, and in the sections below we discuss why we believe ISRG stocks will outperform ABT stocks over the next three years. We compare a whole range of factors, such as historical revenue growth, returns and valuation multiple, in an interactive dashboard analysis from Abbott versus intuitive surgery: Which stock is a better bet? Parts of the analysis are summarized below.
1. Intuitive Surgical’s revenue growth is much better
- Intuitive Surgical’s revenue growth of 11.3% over the past twelve months is higher than Abbott’s 6.4%.
- Even looking over a longer period of time, Intuitive Surgical’s revenue growth has been better. It increased at an average annual growth rate of 16.2% to $5.7 billion in 2021, compared to $3.7 billion in 2018, while Abbott saw its revenue grow at an average annual rate of 12.4% to $43 .1 billion in 2021, compared to $30.6 billion in 2018 .
- Abbott’s revenue growth in recent years has been driven by very high demand for Covid-19 testing. However, as the number of Covid-19 cases has declined in recent quarters, demand for testing is declining, weighing on Abbott’s diagnostics business.
- That said, the company’s medical devices and well-established pharmaceutical sales are likely to experience steady growth in the coming years.
- For Intuitive Surgical, revenue growth in the recent past has been driven by a recovery in the number of procedures, which was negatively impacted by shelter-in-place restrictions in the early stages of the pandemic. The company continues to expand its installed base, resulting in growth in recurring revenues such as consumables.
- That said, the stock has undergone a significant correction this year, due in part to the challenging macroeconomic environment and a second-quarter miss. This trend reversed after the optimistic Q3 results and the company’s announcement of an additional $1 billion in share buybacks.
- U.S Abbott Income Equation and Intuitive comparison of surgical income dashboards provide more insight into the turnover of the companies.
- Looking ahead, Intuitive Surgical’s revenue is expected to grow faster than Abbott’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 13.7% for Intuitive Surgical, compared to a CAGR of 4.2% for Abbott, based on Trefis Machine Learning analysis.
- Please note that we have different methodologies for companies negatively impacted by Covid and those not or positively impacted by Covid when forecasting future earnings. For businesses negatively impacted by Covid, we factor in the quarterly revenue recovery trajectory to predict recovery to pre-Covid revenue percentage. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies that show positive sales growth during Covid, we consider annual average growth pre-Covid with a certain weighting for growth during Covid and the last 12 months.
2. Abbott is more profitable
- Abbott’s operating margin of 22.1% over the past 12-month period is slightly better than 20.5% for Intuitive Surgical.
- However, operating margin has been better for Intuitive Surgical in recent years.
- The figures were 16.1% and 30.7% respectively in 2019, before the pandemic.
- Intuitive Surgical’s free cash flow margin of 31.4% is also better than Abbott’s 22.9%.
- U.S Abbott operating income and Intuitive surgical business income dashboards have more details.
- Looking at financial risk, Intuitive Surgical fares much better. The 0.5% debt as a percentage of equity is lower than 8.9% for Abbott, while the 61.7% cash as a percentage of assets is higher than the 13.6% for the latter, implying that Intuitive Surgical has a better debt position and also kisses more money.
3. The network of everything
- We see that Intuitive Surgical has shown better revenue growth and offers lower financial risk with a better debt position and more cash buffer. While its operating margin is currently slightly lower than Abbott’s, it has been improving in recent years. On the other hand, Abbott is available at a relatively lower valuation.
- Looking at the outlook now, on a P/S basis, due to large swings in P/E and P/EBIT, we believe that Intuitive Surgical is currently the better choice of the two, despite being the more expensive is.
- The table below summarizes our revenue and return expectations for both companies over the next three years and indicates an expected return of 47% for Intuitive Surgery during this period and a 16% expected returns for Abbott stock implying investors are more likely to buy ISRG than ABT, based on Trefis Machine Learning analysis – Abbott versus intuitive surgery — which also gives more details on how we arrive at these numbers.
While ISRG may outperform ABT, it’s useful to see how Abbott’s colleagues rates on metrics that matter. Other valuable comparisons for companies in different industries can be found at Peer comparisons.
In addition, the Covid-19 crisis has led to many price discontinuities, which can provide attractive trading opportunities. For example, you’d be surprised how counterintuitive stock valuation is Xylem versus Merck.
With higher inflation and the increase in interest rates by the Fed, among other things, the share of ABT has fallen by 25% this year. Can it go down even more? See how low Abbott stock can go by comparing its fall to past market crashes. Here’s a performance summary of all stocks in previous market crashes.
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