Intuitive Surgical Stock Has Fallen While Its Operating Margin Keeps Widening

With US procedure growth slowing and the shares well below their high, the operating margin has widened in each of the last three years.

Intuitive Surgical (ISRG), which sells da Vinci surgical systems and their instruments, has lost 21.9% over the past year while the S&P 500 returned 20.2%, and the shares now trade at about 63% of their 52-week high. The reaction has centered on the pace of US procedure growth. The operating margin widened anyway.

Deferrable Cases And Bariatric Volumes Are Where US Growth Slowed

Growth in US da Vinci procedures ran 12% in the June quarter against 14% in the March quarter. Management attributes the step down to procedures patients can defer and to the law of large numbers, with customers pointing to changes in patient coverage, an explanation one analyst has questioned. US bariatric cases fell at a high single digit rate in the June quarter, which the company attributes to rising GLP-1 use. Even with that slowdown, the shares trade at 42.2 times trailing earnings, against a ten-year range of 33.2 to 90.7.

Three Straight Years Of A Widening Operating Margin, Now 31.3%

The path is 24.3% three years ago, 25.8% two years ago, 28.8% a year ago, and 31.3% over the last twelve months, on $11.0 billion of trailing revenue, and it did not break when US case growth slowed. Net margin did not follow, at 28.4% against 28.5% a year earlier. Earnings per share compounded at about 29.7% a year over three years against revenue’s 18.3%, the signature of operating leverage and a shrinking share count. Free cash flow over the last twelve months was about 103% of reported net income, so that profit arrives as cash. Cash conversion of that kind is one of the properties the Trefis High Quality Portfolio favors in its holdings.

Costs Grew Slower Than Sales While R&D Outran SG&A By Design

On management’s non-GAAP basis, June quarter revenue rose 19% while operating expenses rose 13%, with R&D deliberately growing faster than SG&A. Recurring revenue was 85% of that quarter’s total, so most of the revenue does not turn on the next system order. The installed base kept growing: 468 da Vinci systems were placed in the June quarter, up 18% year over year, 246 of them da Vinci 5, and da Vinci XiR systems are now going into ambulatory surgery centers in the US. Management raised its 2026 non-GAAP gross margin forecast to a range of 68% to 69% of revenue, while still flagging higher freight and semiconductor memory costs.

The 2027 Instrument Change Is The Honest Limit On This Case

From the first half of 2027 the extended use program announced in May is expected to add uses to a subset of the company’s instruments, targeted at lowering customer cost per use in high volume benign procedures. Management’s case is a virtuous cycle: lower cost supports broader adoption and drives utilization. Analysts have asked whether revenue per case could fall through 2027, and management has not sized the program’s effect, with pricing still being finalized and the quantification due at the company’s next earnings call. The full-year 2026 forecast for da Vinci procedures worldwide was left at 13.5% to 15.5%, with the company expecting to land closer to the midpoint: mid-teens growth, with the margin still widening on top of it. Whether the share-price fall has gone far enough is what the dip buyer’s playbook exists to answer.

A Widening Margin Still Leaves You Holding One Surgical Robotics Company

A margin curve this steady still concentrates the outcome in one procedure market. The Trefis High Quality Portfolio spreads that same preference for durable margins across many businesses. That portfolio has a track record of outpacing the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000.