Is It Time to Rethink Intuitive Surgical After Recent FDA News?

If you’ve been watching Intuitive Surgical’s ticker lately, you probably have mixed feelings. Should you hang tight, take the plunge, or move on? Let’s talk about what’s really happening beneath the surface of this high-profile medtech stock, because there is a lot more to the story than the day-to-day price swings might suggest.

Over the past year, shares of Intuitive Surgical have slipped by 11.4%, and the year-to-date decline hits an even steeper 18.0%. The last month hasn’t provided any relief, with a 4.5% drop, and the past week alone saw a 5.0% slide. Despite these recent pullbacks, those who took the long view have been handsomely rewarded. Returns over three and five years sit at a robust 134.7% and 71.2%, respectively. The short-term softness appears more tied to shifting investor sentiment and broader market developments for medical device makers, rather than any company-specific stumble.

So, is now actually an opportunity if you’re sizing up value, or should you be wary of lingering risks? According to one common valuation scorecard, Intuitive Surgical checks just 1 of the 6 boxes signaling undervaluation. But what does that actually tell us?

We are about to break down exactly how the market values Intuitive Surgical, looking at metrics and methods investors rely on. At the end, we will reveal a smarter twist on these traditional approaches that could change how you see the company’s true potential.

Intuitive Surgical scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Intuitive Surgical Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and discounting them back to today's dollars. This approach helps investors determine what a business is fundamentally worth, separate from current market sentiment.

For Intuitive Surgical, the most recent Free Cash Flow (FCF) stands at $1.75 billion. Analyst forecasts extend up to five years, but for a full ten-year outlook, some projections are extrapolated. Based on these models, FCF is expected to steadily rise, reaching about $4.38 billion by 2029. These gains are attributed to the company's consistent growth in medtech innovation and operational execution.

After aggregating these future cash flows and discounting them to present value, the DCF method calculates an intrinsic value of $273.04 per share. This is substantially below the current share price. According to this approach, the stock is considered 57.3% overvalued.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Intuitive Surgical.

Our Discounted Cash Flow (DCF) analysis suggests Intuitive Surgical may be overvalued by 57.3%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Intuitive Surgical Price vs Earnings

For profitable companies like Intuitive Surgical, the price-to-earnings (PE) ratio is a widely used metric to assess valuation. This ratio helps investors see how much the market is willing to pay for each dollar of a company's earnings. It is especially relevant when earnings are stable or growing.

Growth expectations and risk play a big role in determining what counts as a "fair" PE ratio. A rapidly growing company or one with lower perceived risk typically commands a higher PE multiple. Conversely, a slower-growth or riskier company could justify a lower one.

Intuitive Surgical currently trades at a PE of 59.1x, noticeably higher than both the medical equipment industry average of 29.5x and the peer group average of 36.8x. On the surface, this premium might seem excessive. However, Simply Wall St's "Fair Ratio" considers not just industry norms but also adjusts for factors unique to Intuitive Surgical, including its strong earnings growth, high profit margins, market cap, and risk profile. This results in a Fair Ratio of 35.7x, a more tailored benchmark for this specific stock.

While comparing a stock to its peers and industry can be useful, the Fair Ratio is more insightful because it incorporates the unique aspects of the company. This offers a more precise view of whether the stock’s current valuation is justified.

With Intuitive Surgical's actual PE of 59.1x sitting well above the Fair Ratio of 35.7x, the shares appear to be overvalued based on this metric.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Intuitive Surgical Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives, a dynamic tool that connects a company’s story and your own expectations with financial forecasts and, ultimately, your fair value estimate.

Simply put, a Narrative allows you to go beyond the numbers by capturing your perspective on Intuitive Surgical. It combines your views about where revenue, earnings, and margins are headed with the reasoning behind those assumptions.

On Simply Wall St's Community page, millions of investors are using Narratives to make informed buy or sell decisions by comparing their calculated Fair Value to the current market price, all while staying flexible as new news or earnings updates automatically refresh their forecasts.

This means your investment case is always up to date, and you can see how your views stack up against others', whether they expect Intuitive Surgical to remain a high-growth global leader commanding a $685 fair value, or see risks justifying a more cautious $325, all with just a few clicks.

For Intuitive Surgical, we’ll make it really easy for you with previews of two leading Intuitive Surgical Narratives:

🐂 Intuitive Surgical Bull Case

Fair Value: $582.10

This is 26% above the last close price.

Expected annual revenue growth: 13.5%

• Global expansion and innovation in robotic-assisted surgery are expected to fuel recurring revenues, margin stability, and a long-term competitive edge, particularly as emerging markets adopt these technologies and procedure diversity increases.
• Wider regulatory and payer support, alongside strong clinical outcomes, is reducing adoption barriers and supporting durable growth across several healthcare markets.
• Main risks include international budget constraints, potential for regulatory delays, intensifying competition (especially for consumables), and uncertainties related to healthcare policy and trade. Analyst consensus targets a fair value nearly 20% higher than the current share price.

🐻 Intuitive Surgical Bear Case

Fair Value: $400.91

This is 7% below the last close price.

Expected annual revenue growth: 12.0%

• Intuitive Surgical’s dominant da Vinci robotic system has revolutionized surgery and built a recurring-revenue digital ecosystem that makes the business model resilient and high-margin.
• With over 9,500 da Vinci systems installed and 2.2 million annual procedures, most of Intuitive’s income now comes from consumables and services, ensuring stable, subscription-like revenues.
• Nonetheless, the stock is seen as overvalued by this narrative, with current pricing offering weak annual returns. The author expresses reluctance to buy unless shares drop below $400, a level rarely seen due to persistent premium valuations.

Do you think there's more to the story for Intuitive Surgical? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com