ISRG Learning Companion: How to read the Intuitive Surgical research

The ISRG research family (page counts are those of the approved PDF editions, which this site does not host):

• Deep Dive: A franchise worth owning at a price that asks for more than we can find (47 pages). Public preview; the Deep Dive page says how to read the full report.
• Research Note: The business is not the question, the price is (5 pages).
• Technical Appendix: The model behind the rating, in figures (14 pages).
• Learning Companion: How to read the Intuitive Surgical research (12 pages).

---

This edition teaches the reasoning behind our research on Intuitive Surgical. It is not a recommendation and it does not replace the Deep Dive or the Research Note.

Why this company is a good lesson

The companion research rates Intuitive 1 / 5 POOR at the 11-02-2026 close of $436.87. That sounds odd for a company that is growing fast and holds $6.8 billion in cash and investments, and the oddity is the best reason to learn how the judgment is built. Almost nothing in it depends on medicine. It depends on four questions an analyst can ask about any company: how does it earn money, what do the earnings really look like, what are they worth, and what would have to be true for the price to be right?

1. How the company earns money

Intuitive sells surgical robots, but the robot is not where most of the revenue comes from. Think of a printer and its ink. A hospital buys or leases a da Vinci system once, and then every surgery performed with it uses instruments and accessories that wear out or expire, so revenue keeps arriving as long as surgeons keep operating. Analysts call a business like this recurring, and they care about the number of procedures more than the number of systems sold in a quarter.

Here is the idea with real figures. In 2025 surgeons performed approximately 3,153,000 da Vinci procedures and 144,100 Ion procedures, together 3,297,100. The company reported $6.02 billion of instruments and accessories revenue. Divide the second figure by the first and you get about $1,826 per procedure. That figure is a blended average that we calculated; the company does not report it, and it hides differences between the two platforms and between countries. Even so, the exercise shows how a forecast can be built: if procedures grow and revenue per procedure changes, the product tells you the recurring revenue. Systems and services revenue, $2.47 billion and $1.57 billion in 2025, add to a total of $10.1 billion, and we link them to procedures too, because the more a system is used the more service and the more replacement systems hospitals need.

Two practical cautions. First, the counts are the company's own estimates and the filings describe them as approximate. Second, the sources separate what is reported (the revenue figures), what management claims (guidance, such as 14% to 15% da Vinci procedure growth for 2026), what we calculate (revenue per procedure) and what we assume (a future growth path). A good habit is to ask, for every number you read, which of the four it is.

2. What the earnings really look like

Companies often publish earnings adjusted to exclude certain costs. Whether a given exclusion is fair is a judgment, and ours is stricter than the company's. We start from operating income under accounting rules, add back the one-time $450 million antitrust settlement charge and the amortization of intangible assets bought in acquisitions, and stop there. In the first nine months of 2026 that is $2.42 billion plus $450.0 million plus $40.4 million, or $2.91 billion, a margin of 33.4%.

We do not add back share-based compensation, the stock paid to employees. It was $632.0 million in the same period, 7.3% of revenue. If a company paid that amount in cash, nobody would call it free, and paying in shares only moves the cost from the income statement to existing owners, who own a smaller share afterward. This is the single most common difference between a conservative and a generous reading of a growth company.

We also found $63.7 million of refunds in the first nine months for tariffs the company paid in earlier periods. They are real money, but they are not a reason to expect higher margins in the future, so we show the margin both ways: 33.4% with the refunds and 32.7% without.

Taxes teach a similar lesson. The company's reported tax rate was 18.4% for the first nine months, but that figure is lowered by tax benefits on stock awards whose size depends on the share price: when the stock is high, the benefits are large. Those benefits are not a lasting feature of the business. Adding them back, and the settlement's tax shield of $103.0 million, gives an underlying rate of 22.4%, and the same calculation on the first nine months of 2025 gives 21.4%. We use 22% in the valuation, because a model should use the tax rate the business can sustain, not the one a high share price happened to produce.

3. What the earnings are worth

The method is a discounted cash flow, and the idea is easy to state. A dollar received in ten years is worth less than a dollar today, because you could have invested the dollar and because the future is uncertain. The discount rate says how much less. We use 9.91%, built from two parts: the 4.91% yield on a ten-year US Treasury, which we measured on 11-02-2026, and a premium for owning a share instead of a Treasury, which we set at 1.0 times 5.0%. The first part is a fact. The second is a judgment, and we say so in the research because it is the most influential number in the model.

To see how much it matters, take one dollar of cash flow arriving in 2035, 8.75 years away on our timing. At a 9.91% discount rate it is worth about 44 cents today. At 6.48% it would be worth about 58 cents. The cash flows have not changed, only the rate, and a company whose value comes from distant years feels the difference at once. For Intuitive, 63.2% of the reference enterprise value comes from the terminal value, our estimate of everything after 2035, so the discount rate carries a great deal of the answer.

Free cash flow is operating profit after tax, plus depreciation, less what the company has to reinvest in equipment and less the extra working capital that growth ties up, which we set at 20% of each year's added revenue. The systems the company leases to hospitals belong in reinvestment, and they are easy to miss because the cash flow statement records their cost in inventory rather than in purchases of equipment. If you start from reported operating cash flow, subtract purchases of equipment and stop: the systems are already in that number, and subtracting them again would count them twice. Our forecast starts from operating profit after tax instead, where that cost has not yet appeared, so we put the systems in reinvestment and keep them out of working capital. Either way, each cost is counted once. In 2025 our gross investment was 13.4% of revenue.

Terminal value deserves one lesson of its own. When a company grows 4.0% a year forever, it must reinvest to do so, and an analyst should check that the return implied on new investment is believable. In an earlier version of our work we assumed terminal investment of 9.0% of revenue, and that implied the company earns a 38.2% return on every new dollar, well above the 25.9% return on invested capital it actually earned in 2025 and the 23.0% to 25.9% of FY2023 to FY2025 on the same definition. We raised the assumption to 10.5% of revenue, which implies a 24.2% return. The valuation fell as a result, and that is what a check like this is for.

4. Scenarios, not predictions

We value the company on three paths. The reference path is our best-supported central case. The downside assumes growth keeps slowing, the planned price cuts land at the top of the range with no extra procedures in response, and nothing recovers. The upside assumes the past decade's pattern continues with a slow fade, with lower prices widening adoption. The values are $118.22, $193.46 and $268.49 per share.

Three things about these numbers are easy to misread. They are conditional: each says what the shares would be worth if that path happened. They are unweighted: we do not say any path is more probable, and we do not average them. And they are not price targets: they are values on 11-02-2026, not predictions of where the stock will trade in a year. The close of $436.87 on 11-02-2026 is above all three, and the rating of 1 / 5 POOR says that, at that price, the shares are valued above every path we can support. The rating would change if the price changed, even if our view of the business did not. A later close is a good test of the habit. On 11-09-2026 the settled close was $460.56, 5.4% higher, so each value sat further below the price, yet the values themselves were still those of 11-02-2026 and the rating still named the 11-02-2026 close. A new price is a reason to look again, not a reason to quietly restate a value.

5. Turning the question around

A reverse valuation turns the question around. Instead of asking what the company is worth, it asks which single input, moved on its own, would make the model's value equal the price. In our model, holding everything else fixed, the reference cash flows match the 11-02-2026 price at a discount rate of 6.48%, which at a beta of 1.0 implies an equity risk premium of 1.57 points, far below the 5.0% we use. Or da Vinci procedure growth would have to be 14.1 points higher in every year from 2027 to 2035, which means 26.1% in 2027 and 19.6% in 2035. A reverse valuation moves with the price: solved again at the 11-09-2026 settled close of $460.56, the same two answers become a discount rate of 6.35% and growth 15.0 points higher, 27.0% in 2027 and 20.5% in 2035.

This is not a statement that investors believe those things. The price fits many combinations of growth, margin and discount rate, and these are simply two. It is a way to see how far the price sits from the numbers an analyst can defend, and to see which assumptions would have to change.

We also combined the favorable end of each of the eight judgments our independent challenge tested: faster and longer growth, a 38% underlying margin, 9.0% terminal investment, 4.5% terminal growth, a 20% tax rate and a discount rate of 8.69%. The value was $358.94, which is 82.2% of the 11-02-2026 price. Notice what the stack leaves alone: the announced price cut stays at the reference's 4.0%, and the volume response, mix and erosion are unchanged, so it is generous about those eight judgments and not about everything. A stress like that is not a case. It tells you how much generosity those eight inputs would need, and here even that was not enough.

6. How a model is tested

Two checks are worth copying. We had the arithmetic rebuilt independently from the same inputs, which shows the model does what it says. And we argued against our own assumptions one at a time, in both directions, because a model can be internally perfect and wrong about the world. The second check changed our work: it moved the tax rate, the timing of the terminal value and the terminal investment. The arithmetic check cannot tell you whether the assumptions are right.

7. Reading a company's history

A single good year says little, so the Deep Dive reads eight. The useful question for each year is what it teaches, not only what it was. Intuitive's FY2020 is the cleanest example. A pandemic held da Vinci procedure growth to 1.1% and U.S. procedure growth to -0.8%, and revenue growth was -2.7%. Look at which lines moved. Systems revenue fell to $1.18 billion from $1.35 billion, which fits hospitals having deferred capital spending, while instruments and accessories revenue still rose to $2.46 billion from $2.41 billion, because surgeries that did happen still used instruments. The lesson is that a company with a large recurring line is cushioned in a shock, and the line that is not recurring is where the shock lands.

History also teaches how to be careful with averages. Revenue compounded at 15.3% a year over the eight years, but a reader who stops there misses that growth ran from -2.7% to 31.0% and that adjusted operating margin ranged from 25.1% to 32.6%. A forecast that assumes a smooth path should be set beside a record that was not smooth.

8. Unit economics: what one procedure and one system earn

A unit is the smallest piece of a business you can price. For Intuitive there are two, and a worked example shows how they reconcile. Take FY2025. Instruments and accessories revenue was $6.02 billion. Divided by the 3,153,000 da Vinci procedures, that is $1,909 per procedure. Earlier we divided by 3,297,100, which adds the 144,100 Ion procedures, and got $1,826. Both are right, and the difference is only the denominator: the first ignores Ion's procedures and so credits the numerator's Ion revenue to da Vinci, and the second spreads revenue across both platforms. Neither is a company figure, and the company does not report Ion's revenue separately, so the honest conclusion is that the split is unmeasured. A good analyst writes down which denominator was used.

Now move from the procedure to the system. The installed base grew from 9,902 systems at the end of FY2024 to 11,106 at the end of FY2025, so the average installed system over the year was 10,504. Dividing 3,153,000 procedures by that gives about 300 procedures per system, and dividing instruments and accessories revenue by it gives about $573 thousand per system. Add services and operating lease revenue and recurring revenue per average system is about $806 thousand. These are our ratios, not the company's utilization measure. What they show is how growth compounds, and how to split a rise into its parts. From FY2019 to FY2025 recurring revenue per average system rose $193 thousand. Instruments and accessories account for $117 thousand of it, and since revenue per procedure ended FY2025 2.6% below FY2019, at $1,909 against $1,959, that part is each system being used more, with price working against it. Operating lease revenue accounts for $63 thousand, or 33%, because more of the base was leased, and services for most of the rest. A rise that looks like one thing is often two.

What the filings do not give you is the other half. We know what a system earns but not what it costs to build, install and support, because the company reports no cost or margin by system. An analyst should say so and not fill the gap with a guess.

9. Cash conversion and why investment comes first

Profit and cash are different, and a leased-system business shows how. In FY2023 net income was $1.80 billion, but operating cash flow of $1.81 billion less purchases of property and equipment of $1.06 billion left only $749.6 million, 41.7% of net income. The reason is that a company that leases systems to hospitals builds them first and collects revenue later, so a year of fast placements costs cash before it shows in the margin. By FY2025 purchases had fallen to $539.8 million and the same ratio was 87.2%. When you read a forecast, ask whether the growth it assumes is paid for in the cash flow it shows.

10. A second way to value, and two ways to move inputs

A valuation that depends on a forecast should be checked against one that does not. We take today's run-rate operating profit of $3.80 billion, tax it, divide by the discount rate as if it never grew, add net cash and subtract the claims against the company. That earnings-power value is $105.31 per share, 24.1% of the 11-02-2026 close, so the rest of the price is a payment for growth. The check does not say the price is wrong; it says how much of it rests on growth continuing.

Moving one input at a time hides interactions, so we also move two together. At our 9.91% discount rate, growth would have to run 14.1 points higher in every year from 2027 for the reference to match the close. At 7.91%, two points lower, it would still have to run 7.0 points higher. A combination that needs both inputs to be generous is a different statement from one that needs a single input to be unusual.

11. Arguing both sides and writing the rules in advance

A fair research document argues for the opposite view as well as it argues for its own. The bull case for Intuitive points to 17.1% a year growth in procedures from FY2018 to FY2024, a revenue per procedure of $1,909 in FY2025 that recovered after falling 5.3% from FY2020 to FY2023 following the last price cut, and $6.80 billion of cash, and it supports our upside path at $268.49. The bear case reads the same dip as a warning, points to slowing U.S. growth, a planned price cut of about 3% to 5%, a rival with FDA clearance in urology and domestic competition in China, and it supports our downside at $118.22. Notice that both sides rest on one fact read two ways: a good habit is to check the fact before you weigh the readings. Neither is a strawman, and the rating does not depend on choosing between them: the close was above both.

The last discipline is deciding in advance what would change your mind, by date and by result. For each dated event, such as the fourth-quarter results or the first-half 2027 pricing, write down which outcome would strengthen the view, which would weaken it and which would leave it unresolved, and tie each to a number in the model. If an event's date is not confirmed in your sources, say so and do not invent one.

12. Where the cash goes, and what a buyback buys

A company that earns more cash than it needs must decide what to do with the rest, and the record shows the decision more honestly than any statement of policy. Over FY2018 to FY2025 together Intuitive's operating cash flow was $15.1 billion. It spent $4.54 billion on purchases of property and equipment, built $2.95 billion of leased systems through inventory, and repurchased $5.72 billion of its own shares. Over the same years it paid $4.01 billion in share-based pay. Now look at the share count rather than the repurchase figure: diluted shares were 356.4 million in FY2018 and 362.7 million in FY2025, up 1.8%. The buybacks did not shrink the company. They mostly handed back to owners the shares that employees had been paid, which is why we count share-based pay as a cost and do not also credit the buybacks.

The first nine months of 2026 broke the pattern in two ways. Acquisitions were $518.6 million, more than twice the eight years' total, including the purchase of the distribution businesses in Italy, Spain and Portugal. And repurchases were $4.42 billion, shares outstanding fell from 355.1 million to 346.6 million, and cash and investments fell from $9.03 billion to $6.80 billion. A valuation has to take both sides of that trade at the same date, the lower share count and the lower cash, or it counts the benefit without the cost. Our model does, it has no debt to subtract, and it assumes no future repurchase, because a buyback at a fair price neither adds nor removes value and one at a high price moves value from the owners who stay to the ones who leave.

Glossary

Procedure: one surgery performed with a robotic system. Instruments and accessories: the single-use or limited-life tools used in each procedure; Intuitive's recurring revenue. Installed base: the number of systems in hospitals. Operating lease: a system placed with a hospital against periodic payments, where Intuitive keeps the asset. Adjusted EBIT: in this research, operating income plus the settlement charge and acquired-intangible amortization, with stock pay left in as a cost. Discount rate: the annual rate used to turn future cash flows into today's value. Beta: how strongly a share tends to move with the whole market; we set it at 1.0 and have not measured it. Equity risk premium: the extra return investors require for holding shares in place of safe bonds. Terminal value: the value of all cash flows after the explicit forecast. Scenario: a conditional path with its own assumptions, not a forecast. Reverse valuation: finding what one input must be for the model to match the price. Unit economics: what the smallest priced piece of a business, here a procedure or a system, earns and costs. Cash conversion: the share of profit that arrives as cash after the investment growth requires. Earnings power: the value of today's profit if it never grew. Joint sensitivity: the effect on value of moving two inputs together.

Questions to try

If revenue per procedure falls but procedures rise by a larger proportion, does recurring revenue rise or fall? Why is the discount rate more important for a company whose value sits in distant years? If a company's reported tax rate is far below the statutory rate, what should you check before using it? Why does a year in which procedures barely grew still show rising instruments revenue? If a company leases the systems it builds, why can cash conversion fall in the years it grows fastest? And why does a rating of POOR at one price not mean the same business is poor at another?

Assumptions and disclosure

The values in this edition are conditional model outputs at 11-02-2026, are unweighted, and are not price targets. The Blockhaven Rating is Blockhaven's own five-level assessment at a stated price and horizon; it is not individualized advice or a recommendation to trade.

Important disclosures

Blockhaven research is provided for general informational and educational purposes. It is not individualized investment advice and does not take into account any reader's financial circumstances, investment objectives, risk tolerance, tax situation or portfolio.

Nothing in this report is an offer or a solicitation to buy or sell a security or other financial instrument. Reading or accessing Blockhaven research does not by itself create an investment-advisory, fiduciary, brokerage or client relationship.

Investing involves risk, including the possible loss of principal. Scenario values, terminal values, valuation ranges, sensitivities and forward-looking assumptions are analytical tools, not guarantees or promises of future performance, and actual results may differ materially.

Blockhaven uses information from company filings, company publications, market-data providers and other sources it believes to be reliable, but that information may be incomplete, delayed, revised or incorrect.

Opinions, ratings and interpretations reflect Blockhaven's research judgment as of the report date and may change as new evidence becomes available.

Positions and conflicts

As of November 6, 2026, Blockhaven's owner held no shares, options, or other direct derivatives in Intuitive Surgical, Inc.; had no material positions in Intuitive Surgical, Inc. through entities the owner controls; and had no paid financial relationships with Intuitive Surgical, Inc.

© 2026 Blockhaven LLC. All rights reserved.