Looking for the Next Intuitive Surgical After The Barron's Pan (ISRG, HNSN, NUVA)

This weekend and this last week has created a lot of buzz around the mighty medical robotics player Intuitive Surgical Inc. (NASDAQ: ISRG).  For starters, it did beat earnings and it raised 2008 guidance.  But this weekend there is an article as the cover story of Barron’s questioning its long-term valuations.  While the article isn’t 100% of a total panning of the company, it does show some discrepancies over what the company believes is the total market opportunity versus what some independents believe.

It seems that Intuitive has its believers and its critics, and to prove it the most recent short data (about to be old) showed that almost 4.1 million shares (over 10% of the float) is listed as being in the short interest.  This is what happens after stocks keep an interest and fascination after a rise of 20-times or more in the stock price in less than a decade.

We wanted to discuss two other stocks that are related to this stock to see if there are still opportunities out there in the sector.  The two we are reviewing here are Hansen Medical Inc. (NASDAQ: HNSN) and NuVasive Inc. (NASDAQ: NUVA).

Hansen Medical Inc. (NASDAQ: HNSN) is perhaps the easiest to identifyas a like-minded stock compared to Intuitive Surgical.  This one doesdoes medical robotics as well but is in catheters for treatment ofabnormal heart rhythms.  Jim Cramer also identified this one long agoas "The Next Intuitive Surgical"when shares were at an adjusted $16.42.  This sits today at $18.30 andhas a 52-week trading range of 13.48 to $39.32. Its market cap is $458million, but analysts are still calling for losses in 2008 and 2009with sales of only $36.55 million in 2008 and $70.67 million in 2009.Analysts also have an average price target of around $29.00.  Hansendid also raise cash earlier this yearand recently received FDA clearance for its CoHesion(TM) Module.  ItsCEO, Dr. Moll, is also a co-Founder of Intuitive Surgical and its ChiefTechnical Officer, Robert Younge, is also a co-founder of Intuitive.While Hansen’s stock is down more than 50% from late-2007 highs, itsstock is still up about 50% from the post-IPO lows.

NuVasive Inc. (NASDAQ: NUVA) is a stock that we have hardly evercovered but is also one that traders have been using for a partialcomparison to Intuitive.  This is different in that its systems aren’texclusively robotics, and it is a leader in spinal surgeries.  Itsbenefits for the spine try to avoid the surgical disasters of the pastin spinal surgeries.  Think of  the people you know who have had badback surgeries, and you’ll realize why this one has seen exponentialgrowth.  Its applications range from fusion, to mobility to traditionalrods to minimally disruptive systems.  This company also say a hugerise at the end of this last week because it also beat earnings andraised guidance.  At $54.86 it put in new intra-day all-time highs (oneof many this year) and its stock has risen roughly 400% since comingpublic in early 2004.  Its market cap is now $1.95 Billion.  While 2008is its cross-over year into profitability, analysts expect it to earn$0.46 EPS in 2009 and the projected revenues of $239 million in 2008(now likely higher) are expected to reach over $325 million in 2009.Analysts have an average price target of around $58.00, although thatmay actually go higher next week after the group gets to key in ontheir updates for NuVasive.

Regardless of the markets and regardless of the political or regulatoryuncertainty ahead, there are always new emerging winners (and losersfor that matter) in medical technology.  Are these companies the next Intuitive Surgical types of stocks in medical technology?  That’s for the history books and stock almanacs to decide.

Jon C. Ogg
July 27, 2007