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Last week Intuitive Surgical (ISRG) surprised everybody, including, apparently, management. Intuitive Surgical’s first-quarter revenue grew 14% year-over-year to $1.7 billion. (Wall Street was expecting $1.6 billion.) Surgical procedures performed using the company’s da Vinci system, rose 26% year-over-year, well above expectations for 15% growth.

And the company raised guidance for global procedure growth to 18% to 21% from the prior guidance of 12% to 16%.

In the last week (ended April 22) Intuitive Surgical shares are p 12.43% and in the last month, the stock has gained 21.70%. Intuitive Surgical has been a member of my long-term 50 Stocks portfolio since January 29, 2019. The shares are up 82.88% in that period.

The results left analysts puzzling to explain the stronger-than-expected growth in procedures. Here’s Morningstar’s take: “Intuitive alluded to a few drivers of demand acceleration, but even if adjusted for relatively easy comparisons, the broad-based volume improvement was puzzling. System utilization was up 13% year over year, relative to normal roughly 5% growth. Demand was strong across all geographies and procedures, but the low acuity/high-volume (cholecystectomy, hernia, and hysterectomy outside the U.S.) procedures clearly took off in the quarter. We estimate that robotic surgery gained market share relative to other approaches in benign surgery in the quarter.”

The other explanation is simply that the rebound from a Covid-19 depressed market was stronger than projected. During the pandemic, hospitals struggled with tight budgets and an almost nonexistent demand for elective surgery. As Morningstar put it, “A number of categories still offer sizable unpenetrated and underpenetrated opportunities, both in and outside the United States. Robotic surgery’s acceptance in most of the developed world is significantly lower than in the U.S., and in the absence of formidable competitors (up until recently), Intuitive should continue to dominate the robotic surgery arena.”

Intuitive Surgical has what is, by far, the largest installed base of robotic surgical systems, with roughly 7,000 da Vinci systems in the field. That, plus the company’s vast database of procedures gives the company a wide competitive moat. “To amass the body of data that Intuitive possesses, new competitors will have to convince enough hospitals to purchase or trial their instrumentation for an extensive period, train robot-naive or da Vinci-trained surgeons, and recruit willing patients,” Morningstar wrote. Once a hospital purchases Intuitive’s system, switching costs become exorbitant, as the average system price of around $1.5 million represents a large portion of a typical hospital’s annual capital expenditure budget.

Morningstar calculates that the stock, at $300.65 a share on April 24, trades at a 47% premium to fair market value.