Intuitive Surgical (ISRG)

Medical technology company Intuitive Surgical (NASDAQ:ISRG) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 22.9% year on year to $2.51 billion. Its non-GAAP profit of $2.40 per share was 20.7% above analysts’ consensus estimates.

Company Overview

Pioneering minimally invasive surgery since its first da Vinci system was FDA-cleared in 2000, Intuitive Surgical (NASDAQ:ISRG) develops and manufactures robotic-assisted surgical systems that enable minimally invasive procedures across various medical specialties.

The surgical equipment and consumables industry provides tools, devices, and disposable products essential for surgeries and medical procedures. These companies therefore benefit from relatively consistent demand, driven by the ongoing need for medical interventions, recurring revenue from consumables, and long-term contracts with hospitals and healthcare providers. However, the high costs of R&D and regulatory compliance, coupled with intense competition and pricing pressures from cost-conscious customers, can constrain profitability. Over the next few years, tailwinds include aging populations, which tend to need surgical interventions at higher rates. The increasing integration of AI and robotics into surgical procedures could also create opportunities for differentiation and innovation. However, the industry faces headwinds including potential supply chain vulnerabilities, evolving regulatory requirements, and more widespread efforts to make healthcare less costly.

Intuitive Surgical's competitors include Johnson & Johnson (NYSE:JNJ) with its Ottava robotic surgery platform, Medtronic (NYSE:MDT) with its Hugo system, Stryker (NYSE:SYK) with its Mako platform for orthopedic procedures, and Zimmer Biomet (NYSE:ZBH) with its Rosa surgical robot. The company also faces competition from Asensus Surgical (NYSE:ASXC) and privately-held companies like CMR Surgical and Vicarious Surgical.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $9.61 billion in revenue over the past 12 months, Intuitive Surgical has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Intuitive Surgical grew its sales at an impressive 17.4% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Intuitive Surgical’s annualized revenue growth of 18.5% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Intuitive Surgical reported robust year-on-year revenue growth of 22.9%, and its $2.51 billion of revenue topped Wall Street estimates by 3.9%.

Looking ahead, sell-side analysts expect revenue to grow 12.1% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is admirable and indicates the market sees success for its products and services.

Intuitive Surgical has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 27.9%.

Analyzing the trend in its profitability, Intuitive Surgical’s operating margin decreased by 3.3 percentage points over the last five years, but it rose by 4.6 percentage points on a two-year basis. We like Intuitive Surgical and hope it can right the ship.

In Q3, Intuitive Surgical generated an operating margin profit margin of 30.3%, up 2 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Intuitive Surgical’s EPS grew at an astounding 20.9% compounded annual growth rate over the last five years, higher than its 17.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q3, Intuitive Surgical reported adjusted EPS of $2.40, up from $1.84 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Intuitive Surgical’s full-year EPS of $8.61 to grow 2.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Intuitive Surgical has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 19% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Intuitive Surgical’s margin dropped by 13.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Intuitive Surgical’s five-year average ROIC was 17.4%, beating other healthcare companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Intuitive Surgical’s ROIC averaged 1.9 percentage point decreases over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Intuitive Surgical is a profitable, well-capitalized company with $5.67 billion of cash and no debt. This position is 3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Intuitive Surgical beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates convincingly. Zooming out, we think this was a very solid print. The stock traded up 17.2% to $542.46 immediately following the results.

Updated: December 4, 2025 at 10:42 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Intuitive Surgical.

In our opinion, Intuitive Surgical is a solid company. First off, its revenue growth was impressive over the last five years. And while its cash profitability fell over the last five years, its impressive operating margins show it has a highly efficient business model. On top of that, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

Intuitive Surgical’s P/E ratio based on the next 12 months is 61.5x. At this valuation, there’s a lot of good news priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $596.36 on the company (compared to the current share price of $568.75).