Collins' Code: Buy da Vinci

01/21/2005 12:00 am EST

Focus:

Jim Collins

Chairman and CEO, Insight Capital Research & Management, Inc.

With a proprietary quantitative system that focuses on growth and momentum, Jim Collins consistently uncovers exciting companies showing strong relative strength, and gaining the attention of investors. His latest buy is a fascinating play on robotic surgery.

"Intuitive Surgical (ISRG NASDAQ) designs, manufactures, and markets the da Vinci Surgical System, an advanced robotic surgery system for performing, complex, precise surgeries with minimal invasiveness. The da Vinci system enables surgeons to overcome many of the shortcomings of both open surgery and minimally invasive surgery. Surgeons operate while seated comfortably at a console viewing a bright and sharp 3-D image of the surgical field. The da Vinci system is designed to provide the surgeon the range of motion, fine tissue control, and 3-D vision characteristics of open surgery while simultaneously allowing the surgeon to work through the small ports used in minimally invasive surgery.

"Instruments mount onto the electromechanical arms that represent the surgeon’s left and right hands and provide the mechanical capability necessary for performing complex tissue manipulations through small ports, or openings, in the patient. Additionally, the company offers a variety of instruments under the EndoWrist name, each of which incorporates a wrist joint for natural dexterity, with tips customized for various surgical procedures. Procedures commonly performed with the da Vinci system include radical prostatectomy and mitral value repair in cardiac patients. Last July, Intuitive announced that it had received FDA clearance for use of the da Vinci system to perform coronary anastomosis, during cardiac revascularization. This broadened the use of the da Vinci system, allowing surgeons in the US to perform coronary artery bypass surgery with small incisions.

"For the quarter ended September 30, 2004, the company reported net income of $0.17 per share, which was $0.29 better than the $0.12 per share loss in the prior year. Revenues increased 52% to $35.5 million. The strong results were driven by an increase in sales, as the company sold 18 da Vinci systems versus 15 in the prior year’s quarter. Banks and mutual funds own 32% of the shares and management owns an additional 7%. The company has a relative strength rating of 98 and receives an A- for accumulation and distribution."

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