Intuitive Surgical, Inc. (NASDAQ:ISRG) has an EPS (trailing-12 months) of $17.04, higher than that of Medtronic, Inc. (NYSE:MDT) at $3.37 and the industry’s $0.82. A highly profitable company, Intuitive Surgical, Inc. (NASDAQ:ISRG)’s net profit margin has been continuously on the rise reaching 31% in the latest quarter. Quarterly revenue is rising by more than 20% year-on-year and its net operating cash flow has been growing at an average rate of 31% in the last four years. There is still a lot of action to expect from this company as the EPS is estimated to grow by 16.3% annually in the next five years.
The strong performance and huge potential of Intuitive Surgical, Inc. (NASDAQ:ISRG) lie mainly in its cutting edge product – the da Vinci Surgical System, which the company calls the future of surgery. The safety of the procedure is backed by a large body of clinical evidence. It is also one of the few that have been granted FDA clearance. This unique position within the industry justifies why it is priced quite higher than its competitors.
In terms of pricing, the P/E ratio of Intuitive Surgical, Inc. (NASDAQ:ISRG) at 29.2, or even its forward P/E of 24.1, is above the industry’s 20.1 and Medtronic, Inc. (NYSE:MDT)’s 15.7, but if you take growth into consideration, the company is relatively cheaper. According to Yahoo! Inc. (NASDAQ:YHOO), its PEG ratio is 1.7 as opposed to Medtronic’s 2.0. To get a greater view of this stock’s performance, I recommend you check this analyst’s post.
It is easy to get lured to Intuitive Surgical over its competitor Medtronic, which has a quarterly revenue growth of only about 4% although it is also a highly profitable business with profit margin above 20%. However, I laud Medtronic for its impressive dividend payouts, which is something that you cannot find in Intuitive Surgical. In fact, Medtronic has increased its annualized dividend payment by over 29% each year on the average in the past three years. Is this safe enough?
Well, its free cash flow has increased significantly in the previous year. Its payout ratio based on cash flow is roughly 23% which means it has left quite a substantial amount for reinvestment. Hence, if you are seeking for candidates in the healthcare sector, I say Medtronic is one that you might want to consider. To get to know about other healthcare stocks that pay the fastest growing dividends, go to my earlier post.
Conclusion
To conclude, looking at the portfolio of huge fund managers provide insights that one can reflect on in their investment decisions. I have picked a couple from Lone Pine Capital’s portfolio; these have had impressive growth performances and are poised for even greater positions in the future. I say Mead Johnson Nutrition CO (NYSE:MJN) and Intuitive Surgical are wonderful companies that are reasonably priced. If income is what you seek, Medtronic can also be a great addition to your investment portfolio.
The article Insights From Lone Pine Capital’s Portfolio originally appeared on Fool.com and is written by Aubrey Tabuga.
Aubrey Tabuga has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical. The Motley Fool owns shares of Intuitive Surgical and Medtronic. Aubrey is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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