Intuitive Surgical Inc (ISRG)

Conclusion

Intuitive Surgical, based in Sunnyvale, California, makes the da Vinci surgical system for minimally invasive procedures and the Ion system for lung biopsies, and sells the instruments and services that go with them. At 460.56 USD on 2026-11-09, the market capitalisation is 162.7 billion USD.

The verdict is overvalued. The stock trades at 55.0x earnings against a ten-year median of 64.2x, and at 45.2x free cash flow against 66.5x, so it looks cheaper than its own history on those measures. The DCF gives 164.75 USD per share, and the fair value band runs from 284.59 to 426.88 USD, with a midpoint of 355.73 USD and a margin of safety of -22.8% at the current price. The reverse DCF implies growth of 27.1% a year, against 18.2% revenue growth and 16.7% free cash flow per share growth over five years.

What supports the case is the balance sheet and the earnings record: the Altman Z-score is 32.17, the company beat earnings estimates in all eight of the last quarters, and the five-year median ROIC of 20.3% sits well above the WACC of 12.1%. What would break it is the growth the price requires, the 27.1% implied rate against 18.2% delivered, and the terminal value, which makes up 48.3% of the DCF. Operating margin of 28.4% is also below its ten-year median of 30.0%.

Financial health

The colour of financial strength is green, held up by the current ratio of 3.33, the quick ratio of 2.28 and the Altman Z-score of 32.17. Net debt to EBITDA, debt to equity and interest coverage are not available, because the company does not report its debt or interest expense in the data. The Altman Z-score of 32.17 places the company in the safe zone; the model was built for manufacturers, and this company is one. Insolvency risk is low, at 0% by the estimate of the Ohlson model over one to two years. The current ratio of 3.33 and the quick ratio of 2.28 mean short-term obligations are covered several times over by liquid assets. The absence of reported debt in the data means leverage cannot be measured directly, so the balance sheet view rests on the liquidity ratios and the Altman score.

Earnings quality

The colour of earnings quality is green. Free cash flow conversion is 121.7% on a trailing twelve-month basis and 72.4% on a five-year average, and free cash flow after stock-based compensation is 2.76 billion USD. The accrual ratio of -0.0088 is slightly negative, which means reported earnings are backed by cash. Stock-based compensation equals 7.2% of revenue. The share count has risen by 0.1% a year over five years, so buybacks have not offset dilution. The Piotroski score is 6 of 8 evaluable criteria passed. The Beneish M-score is not available in the data. The company beat earnings estimates in all 8 of the last quarters, by an average surprise of 21.5%. Analysts raised their current-year estimates by 4.25% over 90 days, with 21 upward revisions and no downward revisions in the last 30 days.

Profitability

The colour of profitability is green. The gross margin is 67.2% against a ten-year median of 68.4%, the operating margin is 28.4% against 30.0%, and the net margin is 25.5% against 27.5%, so all three sit slightly below their history. The operating margin stability figure is 12.3%. The five-year median ROIC of 20.3% is above the WACC of 12.1%, although the trailing ROIC and the ROIC minus WACC value are not available in the data. The DuPont split shows a net margin of 28.4%, an asset turnover of 0.49 and an equity multiplier of 1.16. Return on equity of 18.5% therefore comes from margins rather than from leverage, which is a sound source of return.

Growth

The colour of growth is green. Revenue compound growth is 17.4% over three years, 18.2% over five years and 15.5% over ten years. Earnings per share compound at 29.2%, 21.8% and 16.4% over the same periods. Free cash flow per share compounds at 37.4% over three years, 16.7% over five and 13.0% over ten. Revenue grew in 9 of the 10 comparable years. Analysts expect next-year earnings growth of 10.8%, and their estimates for that year were revised up by 3.3% over 90 days. The three-year rates are the strongest in the record, but the ten-year rates show that growth has slowed over the longer span.

Valuation

The colour of valuation is red, because the verdict is overvalued and the margin of safety is -22.8%. Today's multiples are a price-to-earnings of 55.0x against a ten-year median of 64.2x, a premium of -14.3%; a price-to-free-cash-flow of 45.2x against 66.5x, a premium of -32.0%; a price-to-sales of 14.1x against 17.0x, a premium of -17.2%; and a price-to-book of 10.2x against 9.5x, a premium of 7.1%. The DCF gives 164.75 USD per share at a discount rate of 12.07%, with the terminal share at 48.3%. The fair value band runs from 284.59 to 426.88 USD, with a midpoint of 355.73 USD. The fair value from historical multiples is 546.71 USD. The reverse DCF implies growth of 27.1%, compared with delivered revenue growth of 18.2% and free cash flow per share growth of 16.7% over five years. The fair value is an order-of-magnitude estimate built on fixed assumptions, not a price target. The company pays no dividend.

Risks

The largest risk is the growth the price requires. If revenue and free cash flow per share keep growing at their five-year pace of about 18% and 17%, the implied 27.1% rate will not be reached and the stock will have to re-rate downward. The DCF rests on the terminal value for 48.3% of its result, so small changes in the terminal growth assumption of 2.5% or the discount rate would move the value considerably. A fall in operating margin from 28.4% toward its ten-year median of 30.0% is not a risk in itself, but a further decline would reduce the cash that supports the valuation. The company does not report its debt or interest expense in the data, and the cost of debt of 6.87% is assumed, so the WACC is only partly observed. Net debt to EBITDA, debt to equity, interest coverage, the trailing ROIC and the Beneish M-score are not available. This analysis has no debt maturity schedule and no revenue by segment.