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I reviewed Intuitive Surgical (ISRG) in this July 24, 2025 post following the release of Q2 and YTD2025 results. After listening to management's presentation at the September 3, 2025 Wells Fargo Healthcare Conference, I published this September 3 post in which I disclose my September 3 purchase of another 194 shares @ an average cost of $447.26 in 2 different 'Core' accounts within the FFJ Portfolio.
Following the October 21, 2025 market close, ISRG released its Q3 and YTD2025 results. As I finalize this post on October 23, ISRG's share price is ~$543 thus prompting me to revisit ISRG's valuation.
Business Overview
Please reference my July 24 and September 3 posts that are accessible through The FFJ Archives section of this site.
I encourage you to review the Overview section commencing on page 26 of 58 in the Q3 2025 Form 10-Q. This section provides a good overview of the company, a trade and tariffs update, an overview of the macroeconomic environment, and an explanation of the company's business model. The company's website and the FY2024 Form 10-K are also very good sources of information.
ISRG used to be 'the only game in town' but competition is increasing. With an increase in competition, the expectation is for price reductions and an increase in innovation. Nevertheless, ISRG is investing heavily in research and development to remain the industry leader. While this bulletin from the American College of Surgeons is from May 2023, it provides an indication of how the overall use of robotic surgery is likely to continue to grow significantly over the coming years.
Financials
Q3 and YTD2025 Results
The Q3 2025 Form 10-Q is accessibley through the SEC Filings section of the company's website.
ISRG's Balance Sheet continues to be a fortress!
ISRG ended Q3 with ~$8.433B in cash and investments which is down from ~$9.5B in Q2 and $9.1B in Q1 2025. Looking at the Consolidated Statements of Cash Flows, however, we see that ISRG has allocated ~$0.377B toward the purchase of property, plant, and equipment and it repurchased ~$2.094B of its outstanding shares in the first 9 months of FY2025.
Important metrics to monitor the extent to which ISRG is growing are the installed base and procedures performed by the various da Vinci and and Ion platforms. Several pages are devoted to these important metrics in the Q3 2025 Form 10-Q commencing on page 40 of 58 beginning with the Third Quarter 2025 Operational and Financial Highlights.
While ISRG's various da Vinci models generate the majority of revenue and profitability, the Ion product (a platform for minimally invasive peripheral lung biopsy advancing robotics in thoracic oncology) is gathering momentum.
The following FY2024 data and procedure growth trend and drivers were provided at ISRG's May 1, 2025 Annual General Meeting.
Typically, a phase 1 customer will install 1 ISRG system to 'test' whether robotic surgery improves patient care. If the results are positive, hospitals will add one or two more systems. Once a hospital expands its installed base to 3+ ISRG platforms, ISRG has a 'locked in' customer. This is because it is extremely disruptive and difficult to displace a system with which operating room staff have become extremely adept at using.
NOTE: IDNs are integrated delivery networks. This is corporate ownership groups of hospitals that own 20 or more hospitals within their group. These are highly sophisticated businesses that can analyze the performance of robotic surgery.
Conventional And Modified Free Cash Flow (FCF) Calculations (FY2019 - FY2024 and YTD2025)
In my September 28, 2024 How Stock Based Compensation Distorts Free Cash Flow post, I touch upon how a company's FCF can be distorted. In several subsequent posts, I take a conservative approach when looking at a company's FCF.
FCF is a non-GAAP measure, and therefore, its computation is open to debate. Most companies subtract capital expenditures (CAPEX) from Net Cash Provided by Operating Activities found in the Consolidated Statement of Cash Flows. They do not, however, deduct share-based compensation (SBC). Given the magnitude of ISRG's SBC, I think it is prudent to deduct it.
NOTE: The repurchase of ~$2.094B of ISRG's shares has lowered the diluted weighted weighted average outstanding shares in Q3 2025 to 361.8 million. The YTD2025 weighted average, however, is 363.5 million.
The following reflects ISRG's FCF calculations using the weighted average diluted shares outstanding in Q3 2025. With so many outstanding shares, the $2.094B repurchase hardly made a dent in the FCF calculations.
FY2025 Outlook
On the prior quarter's earnings call, management forecast FY2025 da Vinci procedure growth of 15.5% - 17%. This procedure growth guidance is now revised to 17% - 17.5%
ISRG now forecasts FY2025 pro forma gross profit margin of 67% - 67.5% of revenue. The prior forecast was 66% - 67%. This change reflects greater leverage of fixed costs and benefits from cost reductions as well as a lower expected tariff impact for the year. Within the revised gross profit range, the tariff impact for FY2025 is expected to be ~70 bps, plus or minus 10 bps.
Pro forma operating expense growth is expected to be 11% - 13% versus the prior estimate of 10% - 14%. This revised growth includes increased depreciation from new facilities and investments to drive growth objectives.
The noncash stock compensation expense is expected to be ~$0.785B - ~$0.795B, a change from prior guidance of $0.77B - $0.79B.
Other income, comprised mostly of interest income, is forecast to be ~$0.35B - ~$0.36B. Prior guidance was ~$0.37B - $0.39B.
The revised CAPEX estimate is ~$0.625B - $0.675B which reflects planned facility construction activities. The prior CAPEX estimate was $0.65B - $0.725B.
The 2025 pro forma income tax rate is now forecast to be 21% - 22% of pretax income versus the prior 22% - 23%.
Risk Assessment
No rating agency rates ISRG because it has no debt.
The following commentary is provided on page 49 of 58 in the Q3 2025 Form 10-Q.
Our principal source of liquidity is cash provided by our operations. Cash and cash equivalents plus short- and long-term investments decreased by $0.40 billion to $8.43 billion as of September 30, 2025, from $8.83 billion as of December 31, 2024, primarily as a result of cash used for repurchases of common stock, capital expenditures, and taxes paid related to net share settlements of equity awards, partially offset by cash provided by operating activities and proceeds from stock option exercises and employee stock purchases.
Our cash requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. We expect to continue to devote substantial resources to expand procedure adoption and acceptance of our products. We have made substantial investments in our commercial operations, product development activities, facilities, and intellectual property. Based on our business model, we anticipate that we will continue to be able to fund future growth through cash provided by our operations. We believe that our current cash, cash equivalents, and investment balances, together with income to be derived from our business, will be sufficient to meet our liquidity requirements for the foreseeable future. However, we may experience reduced cash flow from operations as a result of macroeconomic and geopolitical headwinds.
Dividends
ISRG does not distribute a dividend.
In FY2019, there were 358.4 million outstanding diluted shares. In Q3 2025, this had increased to 361.8 million.
ISRG's Board has authorized an aggregate of $13.0B of funding for the common stock repurchase program since its establishment in March 2009. The most recent authorization occurred in May 2025, when the Board increased the authorized amount available under the Repurchase Program to $4.0B, including amounts remaining under previous authorization. As of September 30, 2025, the remaining amount of share repurchases authorized by the Board under the Repurchase Program was ~$1.9B.
Valuation
In my September 3, 2025 post, I reflect the following:
When I wrote my July 24 post, ISRG's shares were trading at ~$499.935. Shares were definitely not a bargain but I added a few shares to my exposure. With shares currently at ~$441 and no material change to the company's long-term outlook, I think ISRG presents an attractive long-term investment opportunity.
As noted in my prior post, ISRG generated YTD2025 diluted EPS of $3.72 and $4.00 of adjusted diluted EPS. Despite the headwinds management presented on the Q2 2025 earnings call, there is a good probability that FY2025 diluted EPS and adjusted diluted EPS could be ~$7.45 and ~$8.00. The diluted PE and adjusted diluted PE using my September 3 purchase price are ~60 and ~56.
Using this purchase price and the current broker estimates, ISRG's forward-adjusted diluted PE levels are:
- FY2025 - 28 brokers - ~54.8 based on a mean of $8.16 and low/high of $7.95 - $8.31.
- FY2026 - 27 brokers - ~48.2 based on a mean of $9.27 and low/high of $8.73 - $9.77.
- FY2027 - 20 brokers - ~41.5 based on a mean of $10.79 and low/high of $10.10 - $11.81.
- FY2028 - 7 brokers - ~36.6 based on a mean of $12.21 and low/high of $11.31 - $13.92.
Although I look at brokers' earnings estimates, I am extremely reluctant to place any reliance on them. My reasoning for excluding estimates beyond the current fiscal year is that I have no idea how anybody, especially in the current environment, can determine how a company will perform over the next few years. The variance in the brokers' earnings estimates clearly indicates there is no consensus on how ISRG is likely to perform going forward.
Looking at ISRG's valuation from a P/FCF perspective, there is a considerable variance in FCF when we use the conventional and modified methods (see table provided in my July 24 post). This is because ISRG issues significant shareholder based compensation.
If we assume that ISRG can generate a similar amount of FCF/share in the second half of FY2025 as in the first half, we arrive at ~$5.626 and ~$3.53 of FCF/share. Both are well below my estimates of ~$7.45 in diluted EPS and ~$8.00 adjusted diluted EPS. ISRG's valuation from a FCF perspective when using my $447.26 purchase price is ~79.5 and ~126.7.
Fast forward to October 23. With ISRG's current ~$543 share price and current broker estimates, we now see that the forward-adjusted diluted PE levels are:
- FY2025 - 29 brokers - ~63.6 based on a mean of $8.54 and low/high of $8.05 - $8.75.
- FY2026 - 29 brokers - ~56.6 based on a mean of $9.60 and low/high of $8.93 - $11.23.
- FY2027 - 23 brokers - ~49 based on a mean of $11.09 and low/high of $10.26 - $12.23.
- FY2028 - 9 brokers - ~42.9 based on a mean of $12.67 and low/high of $11.74 - $14.25.
On the Q3 earnings call, management states that capital expenditures for FY2025 will be ~$0.625B - ~$0.675B. This reflects planned facility construction activities.
If it can generate similar OCF in Q4 as in the prior 3 quarters, FY2025 OCF should be ~$2.85B. Deduct ~$0.65B in CAPEX and the conventional FCF for FY2025 should be ~$2.2B.
With the resurgence in ISRG's share price, I suspect ISRG will not repurchase any more shares in the remainder of FY2025. If I use a weighted average number of outstanding shares of 363 million for FY2025, FY2025's conventional FCF/share should be ~$6.06/share (~$2.2B/363 million shares).
On a modified basis, I anticipate SBC in Q4 will be ~$0.79B which is the mid-point of management's revised guidance. By deducting ~$0.79B of SBC from my ~$2.2B FCF calculated using the conventional method, the modified FY2025 FCF should be ~$1.41B. Use a weighted average number of outstanding shares of 363 million for FY2025, FY2025's modified FCF/share should be ~$3.88/share (~$1.41B/363 million shares).
Using the current ~$543 share price, the forward P/FCF is ~90 and ~140 (conventional and modified).
Final Thoughts
Following my September 3 purchases, my ISRG exposure is 844 shares in two different 'Core' accounts. Young investors I am helping on their journey to financial freedom also have ISRG exposure.
ISRG was my 7th largest holding when I completed my 2025 Mid-Year Portfolio Review. I do not know its current ranking but suspect it is still a top 10 holding.
Nothing has recently changed about the company subsequent to my September 3 purchases yet investors have significantly bid up the share price. This is a clear example of how/why short-term share price behavior is largely meaningless and can lead investors astray. We would be wise to ignore short-term market fluctuations and to prioritize the fundamental value of businesses for long-term investing.
I disclose the following purchases in my July 17, 2025 post:
- 50 shares purchased @ ~$511.18 on July 11
- 50 shares purchased @ ~$508.98 on July 16
In my July 24, 2025 post I disclose the purchase of 50 shares @ $499.935 on July 23.
In my September 3, 2025 post, I disclose the purchase of 194 shares @ $447.26 on September 3.
Now? I think ISRG's valuation is rich and am not immediately adding to my exposure.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long ISRG.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation. I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
