Is Intuitive Surgical Stock A Buy?

Intuitive Surgical (NASDAQ: ISRG) capped off a record-breaking 2024 with a blowout fourth-quarter earnings report. For the period ended Dec. 31, the medical technologies (medtech) giant delivered adjusted earnings per share (EPS) of $2.21, well above the $1.79 consensus Wall Street estimate. The $2.4 billion in quarterly revenue solidly beat expectations of $2.25 billion, up 25% year over year.

Despite the impressive headline numbers, the stock sold off on the report as the initial market reaction likely focused on some relatively muted guidance. Nevertheless, shareholders can't complain too much as the stock is still up about 55% over the past year.

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Taking into account the company's latest update, the question remains: Can the rally keep going in 2025? Let's discuss whether Intuitive Surgical stock is a buy now.

A medtech leader with strong fundamentals

For more than two decades, the da Vinci surgical system has represented the industry standard for minimally invasive robotic-assisted surgery. Through enhanced precision and control, often beyond the capability of a human hand, surgeons can deliver improved patient outcomes with significantly reduced rates of complications. Intuitive Surgical continuously updates its product features to cover an expanding scope of indications.

The latest trends suggest the company is successfully executing its long-term strategy to expand its market share. In 2024, Intuitive grew its installed system base by 15% to 9,902, even accelerating from a 14% pace in 2023. The number of procedures performed climbed by an even stronger 17%, highlighting the technology's worldwide adoption.

That dynamic is particularly important considering the company's razor-and-blade operating model. In this case, Intuitive commercializes not only the high-ticket priced da Vinci system to hospitals and surgical centers but also the necessary single-use tools and instrumentation that now represent more than half of total revenue.

The result is a powerful growth flywheel to leverage earnings higher. Recurring revenue now make up 84% of the business, compared to 75% as recently as 2021.

A potentially transitional year in 2025

Perhaps the company's biggest development in the past year was the clearance by the Food and Drug Administration for Intuitive's newest-generation da Vinci 5. The system demonstrates a leap in technology by integrating a more digital interface with artificial intelligence (AI) and machine learning capabilities.

The company notes the new model brings 150 design advancements and 10,000 times the computing power over the most widely installed da Vinci Xi platform. Following the initial launch with 362 da Vinci 5 placements last year, the expectation is that the platform will represent a growth driver for the next several years. Management has expressed optimism for 2025, targeting worldwide da Vinci procedures to increase between 13% to 16%.

However, the company's guidance for adjusted gross margin of 67% to 68% of net revenue indicates a slight decline from 69.1% in 2024. This decrease reflects a shifting sales mix toward its new products and increased expenses associated with the da Vinci 5 rollout.

Wall Street analysts are taking the middle ground, seeing 2025 as a transitional year for the company. The projected full-year revenue growth of 15% and a 9.3% increase in EPS would both mark a deceleration compared to 2024. The pivot may only be temporary -- Intuitive is positioned to benefit from an anticipated da Vinci replacement cycle heading into 2026 as customers upgrade their systems, which should support more robust company growth.

Data source: Yahoo! Finance. YOY = year over year.

The big picture for investors

Following Intuitive Surgical's remarkable performance in 2024, the stock may be due for a breather, especially considering the tempered sales and earnings projections for 2025.

At the current level, investors face reconciling Intuitive Surgical's objectively lofty valuation with shares trading at 72 times its consensus 2025 EPS as a forward price-to-earnings (P/E) ratio. While this premium earnings multiple can be justified by the company's industry leadership and positive long-term prospects, it may serve as a near-term headwind against a significant near-term share price appreciation without clear signals of accelerating growth.

For existing shareholders, I believe the prudent move is to stay the course and hold your positions by staying focused on the company's long-term potential. Meanwhile, prospective investors sitting on the sidelines have some good reasons to remain there and consider more attractive opportunities elsewhere in the market.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.