Up 52% YTD, is Intuitive Surgical Stock Overvalued?

Valued at a market cap of $184 billion, Intuitive Surgical (ISRG) has created massive wealth for long-term shareholders. In the last 20 years, the healthcare giant has returned 15,903% to investors.

The outperformance has continued in 2024 as well, with shares rising over 52% year-to-date. ISRG set new record highs above $523 to end last week, boosted by a 10% rally on Friday in response to its latest quarterly earnings report.

Let’s see if Intuitive Surgical is overvalued after its post-earnings pop, or if the stock can continue to deliver market-thumping gains to shareholders. 

Is ISRG Stock a Good Investment Right Now?

Intuitive Surgical develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality and access to minimally invasive care in the U.S. and internationally. Its da Vinci Surgical System enables complex surgery using a minimally invasive approach. The company’s Ion endoluminal system extends its commercial offering in diagnostic procedures such as lung biopsies. Moreover, it provides a suite of stapling, energy, core instrumentation for its surgical systems, and customer support, installation, repair, and maintenance services. 

In Q3 of 2024, Intuitive Surgical reported revenue of $2.04 billion, an increase of 17% year over year. Comparatively, adjusted earnings per share rose by 26% to $1.84 in Q3, up from $1.46 in the year-ago period. Its installed base of da Vinci systems grew by 15% to 9,539 in the September quarter. 

Intuitive Surgical continues to dominate the market for minimally invasive procedures powered by assisted robotic surgical systems within the da Vinci platform. Over the years, the company has successfully expanded its installed base of da Vinci systems, resulting in higher recurring sales from related instruments and accessories. 

ISRG launched the da Vinci 5 system in Q3, and reported strong product acceptance rates. It placed a total of 379 systems in Q3, 110 of which were the latest version of the da Vinci system. 

What's Next for ISRG Stock?

Intuitive Surgical will bank on expanding its product portfolio to gain traction in several international markets. In Q3, it received approval from South Korean regulators for its da Vinci 5 product line. Notably, the number of procedures using its flagship system rose by 18% yearly, indicating a strong demand for its systems. 

Despite a challenging macro environment, Intuitive Surgical has maintained a gross margin of 67% in the last 12 months, compared to 66.4% in 2023. Its operating margin has also improved to 26.2% from 24.8% in this period. With more than $8.3 billion in balance sheet cash, Intuitive Surgical has enough liquidity to pursue growth opportunities, including acquisitions. 

Going forward, Intuitive Surgical is well-positioned to benefit from the international rollout of the da Vinci 5, as well as strong growth in recurring revenue streams. Its recurring revenue rose from $4.9 billion in 2022 to $5.94 billion in 2023. In the last 12 months, its recurring sales have surpassed $6.6 billion. 

What's the Target Price for Intuitive Surgical Stock?

Out of the 25 analysts covering ISRG stock, 15 recommend “strong buy,” two recommend “moderate buy,” and six recommend “hold,” for an average rating of “moderate buy.” 

The key drivers of ISRG's stock price are its revenue and earnings growth. In the last 10 years, the company has increased revenue at an annual rate of 14.2%, while earnings growth was higher at 17.2%. Priced at 66x forward earnings, ISRG trades at a hefty premium, as its annual earnings growth is forecast at 17% in the next five years. 

Accordingly, Wall Street's average target price for ISRG stock is $526.04, indicating minimal expected upside from the current trading price. 

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.