Is Intuitive Surgical a Buy After Volatile Reaction to Earnings?

Key Points

• Intuitive Surgical beats estimates on the top and bottom lines, but mixed guidance due to tariff uncertainties limits the stock’s gains.
• The company faces complicated tariff impacts from China, Europe, and Mexico that could impact future results.
• ISRG stock is trading below its 50- and 100-day SMAs, and analysts are lowering price targets while still suggesting the potential for a 16% rise. This makes the stock's outlook fluid and uncertain.

Shares of Intuitive Surgical Inc. NASDAQ: ISRG are leveling off after some volatile price movement around the company’s quarterly earnings. On April 22, the robotics surgery company delivered a beat on the top and bottom lines. However, the company offered mixed guidance with the potential for higher volumes being offset by uncertainty over the Trump administration’s tariff policy.

Investors know that stock price movement around earnings can be volatile. This was particularly true of ISRG stock. In the trading session before the report was released, ISRG stock shot 8% higher, but it quickly gave back most of those gains after the report was released, after the market closed.

However, in the days following the company's report, investors have reassessed it, and the stock is trying to move higher, albeit below the high it made before the company reported.

Even With a Double Beat, the Company Reported Mixed Earnings

The headline numbers for Intuitive Surgical were solid. The $1.81 earnings per share (EPS) easily beat estimates by 10 cents and were 20% higher year-over-year (YOY). The same was true of revenue. The $2.25 billion generated in the quarter topped estimates by 3.27% and came in 19% higher YOY.

Double beats generally result in a stock price bump, but with tariffs on the minds of so many investors, Intuitive Surgical’s guidance would receive significant scrutiny. The company expects to see enhanced volume growth for procedures. For example, it expects the number of procedures from customers using its da Vinci systems to increase by 15% to 17%. That was higher than the company’s previous guidance for 13% to 16% growth.

Tariffs will offset that growth. However, the company could only provide limited guidance in that regard.

A Complicated Tariff Outlook

On the one hand, management reported that, in 2024, 98% of its DaVinci systems were manufactured in the United States. However, 70% of the company’s endoscopes were manufactured in Europe, and approximately 80% of its instruments and accessories were manufactured in Mexico.

Further complicating the picture, Intuitive Surgical sources the raw materials and other components that go into these products from many other countries. This exposes the company to three different levels of tariffs in its current state:

• China – the company is both an importer and an exporter. At the time of the earnings report, it could incur 125% and 145% tariffs, respectively. The Trump administration has made remarks suggesting the final numbers won’t be that high, but each number is likely higher than the prior level.
• Europe – Intuitive Surgical procures components from approved suppliers and imports endoscopes from its own European factories. These are subject to 10% baseline tariffs that may go higher when the ninety-day pause is over, or when a trade deal is reached.
• Mexico - Some of the company's products are not certified under the USMCA agreement and would be subject to the current 25% import tariffs.

This illustrates the concern that investors feel over the current tariff situation. Intuitive Surgical is guiding to a non-GAAP gross margin of 65% to 66.5%, a decline of about 5% YOY. That assumes an estimated impact of 1.7% to revenue, plus or minus 30 basis points.

Getting Involved With ISRG Stock

At 75.8x forward earnings, the company’s stock is expensive relative to the broader market and other medical stocks but not to its five-year average. Over the last five years, that premium hasn’t impeded shareholders. ISRG stock is up. It’s an encouraging sign that the stock seems to have found support at around the $485 level.

However, the stock is still trading below its 50- and 100-day simple moving averages (SMAs). With so much uncertainty surrounding tariffs, there’s no good reason to believe the stock will move sharply higher in the short term.

Then again, investors saw what could happen with a single remark from the current administration. The bottom line for investors is that a range of outcomes is possible, and analysts are lowering their price targets, albeit still suggesting the stock could rise by about 16%.

The outlook for ISRG stock is as fluid as the tariff situation. That’s why investors may want to wait for the stock to break above the 50-day SMA, or fall decidedly lower, before taking a long position.