Why Intuitive Surgical Is a No-Brainer for Long-Term Investors

Key Points

• Intuitive Surgical is a good buy because of its well-run operation, fortress-like balance sheet, and robust cash flow.
• Share buybacks help shareholders gain leverage.
• Analysts and institutions are bullish on this stock, which could rise as much as 50% from its critical support target.

Intuitive Surgical NASDAQ: ISRG is intuitively a good buy-and-hold stock because its industry-leading, in-demand products and services generate robust cash flow, driving consistent gains in shareholder value. The value is evident in its balance sheet and cash flow metrics, which enable it to buy back shares while investing in growth and maintaining one of the healthiest balance sheets on Wall Street. 

At the end of Q3, balance sheet highlights include $8.4 billion in cash, increased inventory, property and assets, only partially offset by increased liabilities. The net result is a 3% increase in equity and persistently low leverage. This business does not use debt but relies on cash flow. Regarding its cash position, Intuitive Surgical is net cash, with cash approximately 3.6x total liabilities and liabilities only 0.13x shareholders’ equity—a very healthy financial position. 

Intuitive Surgical Skyrockets on Robust Demand

While macroeconomic conditions warranted caution ahead of the Q3 release, the results belie that need. The company produced $2.51 billion in net revenue for a gain of 23% compared to last year, outperforming MarketBeat’s reported consensus by more than 400 basis points.

The strength was driven by a 20% increase in instrument sales, a 20% increase in procedure volume, and the placement of new systems. The company placed 427 Da Vinci systems in the quarter, up 12% year over year, driven entirely by Da Vinci 5. Placement of the Da Vinci 5 increased by more than 100%. 

Margin is another area of strength. Not only were the impacts of tariffs less than feared, but the company controlled its costs. Expenses grew more slowly than revenue, offsetting gross margin contraction and enabling accelerated income growth.

Net income grew by 24.6%, adjusted net, including the impact of one-offs, grew by 29.6%, and earnings grew by approximately 30%. The critical detail is that EPS came in 2000 basis points above consensus, compounded by favorable guidance. 

The strength of systems demand and procedure volume allowed the company to improve its guidance. Procedure volume is expected to grow by up to 17.5%, accelerating slightly from the prior year, and the impact of tariffs will be minimal.

While there is a noteworthy contraction in the margin, it is far less than expected and sufficient to sustain the robust capital outlook. Expense growth is also forecasted to be favorable, advancing only 12% at the midpoint, pointing to accelerated earnings growth. 

Analysts and Institutions Set ISRG Stock Up for Its Rebound

The analysts and institutional groups are bullish on ISRG but set it up for a rebound by trimming price targets and selling shares ahead of the release. The result is that rapidly improving sentiment, driven by the robust report, pushed the stock price to the consensus level, suggesting even higher prices will follow. The likely outcome is that analysts will begin to raise their price targets, and the evidence is already emerging. MarketBeat tracked a single revision within the first few hours of the release.

BTIG Research rates the stock a Buy, above the Moderate Buy consensus. It has raised its price target to $589, in line with the consensus, and others are likely to follow. The high-end target is $700, a 50% increase from the pre-release close. 

The stock price action is very bullish, confirming support at a critical level and setting the market up to move higher. The MACD and stochastic indicators align with a bullish trend-following price swing and are compounded by elevated trading volume, which reflects a high degree of market commitment. Critical resistance points are near $565 and $600; once they are cleared, a move to the $700 range may follow within only a few quarters.