Is ISRG's Procedure Growth Enough to Offset Margin Pressures in 2025?

Intuitive Surgical ISRG entered 2025 with strong operational momentum, delivering 17% year-over-year growth in da Vinci procedures and a 19% rise in total revenues (to $2.25 billion) in the first quarter. Notably, day-adjusted procedure growth reached 18.5%, causing management to raise full-year guidance to 15-17%. This growth was supported by robust adoption in general surgery in the United States and accelerated utilization in emerging markets like India, Korea and the United Kingdom. The rollout of the da Vinci 5 platform continued at pace, with 147 new systems placed and over 32,000 procedures completed using the new-generation robot.

However, this clinical and procedural strength faces growing financial headwinds. Gross margins declined to 66.4% in the first quarter from 67.6% a year ago due to increased depreciation, a higher mix of lower-margin platforms like Ion and da Vinci 5, and emerging cost pressures from newly implemented global tariffs. ISRG now expects tariff-driven cost of sales to erode margins by approximately 170 basis points for the full year, revising its gross margin forecast to 65-66.5%.

While recurring revenues remain strong, representing 85% of the total revenues, capital expenditures, manufacturing investments and rising input costs may challenge operating leverage in the near term. Moreover, constrained hospital budgets in key markets like Germany and Japan could tamper the company’s capital placement run rate, adding another layer of margin pressure.

Intuitive Surgical’s solid procedure growth and market adoption are commendable, but they will be tested against a backdrop of tightening margins, macroeconomic headwinds and evolving trade dynamics. Investors should watch closely whether strong volume momentum can continue to outrun inflationary and structural cost drags in the quarters ahead.

Improving Margin for ISRG’s Rivals

In the first quarter of 2025, Stryker SYK posted strong financials, with organic sales growth of 10.1% and total revenues reaching $5.87 billion, reflecting an 11.9% year-over-year rise. This was driven by robust demand across MedSurg & Neurotechnology and Orthopaedics segments, including standout growth in trauma and extremities, and expanding Mako installations.

Stryker’s adjusted gross margin was 65.5%, up 190 basis points year over year, aided by manufacturing efficiencies, favorable pricing and product mix. Despite a $200 million tariff headwind expected for the year, Stryker maintained operating margin expansion of 100 basis points, reflecting strong cost control and operational leverage.

In contrast, Medtronic MDT reported 3.9% year-over-year revenue growth in the fourth quarter of fiscal 2025 (to $8.93 billion), with strength in Cardiovascular (up 22% in cardiac ablation), Neuroscience, and Diabetes offsetting surgical headwinds. Medtronic’s gross margin improved to 64.7% (up 19 basis points) and operating margin rose to 26.6%, buoyed by pricing strategies and cost-of-goods-sold productivity gains. However, growth remained uneven across Medtronic’s portfolios.

ISRG’s Price Performance, Valuation and Estimates

Shares of ISRG have gained 0.1% in the year-to-date period against the industry’s decline of 11.4%.

From a valuation standpoint, Intuitive Surgical trades at a forward price-to-earnings ratio of 62.09, above the industry average. But, it is still lower than its five-year median of 72.17. ISRG carries a Value Score of D.

The Zacks Consensus Estimate for Intuitive Surgical’s 2025 earnings implies a 6.8% rise from the year-ago period’s level.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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