Intuitive Surgical (ISRG)

By both methods, the value today (DCF $371 · Multiples $282) is below the market price ($428).

Today — expensive, no margin of safety: at $428 trades ~51.8% above its value discounted to today (~$282); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$175.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($428) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (18.5%/year) above our base case (15.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$7.3 bn of owner earnings in year 5 (vs ~$6.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta × P/E. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Intuitive Surgical pays no dividend and has no debt: all surplus flow is redeployed between buybacks (which in recent years mostly offset dilution from stock compensation, without materially reducing the share count) and reinvestment in manufacturing/R&D for the da Vinci 5 cycle. Cash stays approximately stable (reinvestsExcess), no excess cash beyond what is already on the balance sheet accumulates, and the share count stays approximately constant in the projection. The start of the path (year 1) is anchored to FY2026 guidance for da Vinci procedure growth (13.5%-15.5%, midpoint ~14.5%, communicated by the company with the second-quarter 2026 report), not to the recent historical trajectory (+20.7% TTM), because that guidance is newer and more specific information than extrapolating the filing — the same criterion that anchored the path in other cases with a guidance cut.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $351 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $428, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $351 in 5 years and a required return of 4.5% annually, the maximum to pay today is $282. Against the current market price ($428), the margin of safety is -51.8% (trades above the maximum → a premium is paid) and the total return at that price would be -3.9% annually.

• Multiple vs. quality. P/E TTM 49×, well above the 16-22× band of the med-tech archetype even after the stock's decline.
• Multiple compression. The base scenario requires the multiple to compress from 49× to ~20× along the growth path — most of the return depends on that compression not turning out more severe.
• Margin of safety. No margin of safety: the price already discounts a demanding scenario. The base return sits close to the threshold that separates a positive verdict from a negative one.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ! CFROIC backs up the ROIC (73%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC exceeds the cost of capital. ROIC ~23% on the balance sheet's real invested capital (equity + debt − cash), well above the 10% bar — an exceptional band.
• Margin and stability. Operating margin ~31% TTM, steadily expanding from 25.3% in 2022; predictable earnings on a recurring model.
• Quality of cash. TTM OCF (US$3,706 million) comfortably exceeds net income, but 25.6% of that flow corresponds to the non-cash add-back of stock-based compensation — it is expensed in the valuation metric (P/E), not double-counted.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Intuitive Surgical's engine is procedure volume × revenue per procedure (instruments and accessories plus service), leveraged over an expanding installed base of systems. da Vinci procedures grew 18% in 2025 on an installed base that grew 12% — utilization per system also rose (+3% as stated). FY2026 procedure growth guidance (13.5%-15.5%) is the most direct, forward-looking signal of the expected pace of this line going forward.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Revenue growth (+20.7% TTM) is organic, backed by procedures (+18% in 2025) and installed-base expansion (+12%), not by inflation or acquisitions.
• Growth engine. Procedure volume × revenue per procedure (instruments and service) over a growing installed base, plus new system placements at a higher price (average selling price rising on the mix shift toward da Vinci 5).
• Deceleration and cycle. FY2026 guidance (procedures +13.5%-15.5%) marks an explicit and significant deceleration from the recent pace (>18%), the most important signal to watch.

• Relevant in 10 years (recurrence). The recurring-instrument model tied to surgical procedure volume has very high recurrence; robotic surgery is a structurally expanding category, not one at risk of obsolescence.
• Pricing power. The average selling price of systems rose from US$1.50 million to US$1.60 million (2024 to 2025) on the mix shift toward da Vinci 5, real evidence of pricing power.
• Moat and its direction. Wide moat (switching costs, patents, clinical evidence) but with a direction that is eroding: growing competition in China and entry of large, well-funded players.
• Capital cycle. Capital is actively entering the sector (multiple Chinese entrants and large medical device manufacturers explicitly named in the filing as current or potential competitors), pressuring future returns.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• !Cash quality (CFROIC vs ROIC)CFROIC backs 73% of ROIC
• ✓Value creation (ROIC − 10% bar)+13pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.7x — no over-investment
• !Float / working capitalConsumes cash $1.3 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 7.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total financial debt US$0. No corporate solvency risk.
• Coverage and cash. Cash and short-term investments US$5,216 million, with no debt to cover. Solid balance sheet.
• Working capital. Inventory growth (to support the da Vinci 5 launch) consumed US$1,063 million of operating cash in 2025 — a growth investment, not a sign of deterioration.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. The largest shareholders identified in the proxy are passive institutional investors (Vanguard 9.5%, BlackRock 8.6%); the detail of director and executive ownership as a group was not broken out in this synthesis — declared as pending data.
• Capital allocation. No dividend. Buybacks (US$2,300 million in 2025) mostly offset dilution from stock-based compensation rather than materially reducing the share count; the remainder is reinvested in manufacturing and R&D.
• Integrity / normalization. The company communicated the guidance cut explicitly and with specific figures (13.5%-15.5%) along with the stated causes (GLP-1, China, Affordable Care Act premium dynamics), rather than attributing the slowdown to generic noise.

• Motivated sellers: FY2026 procedure growth guidance (13.5%-15.5%) came in well below the recent pace (>18%), an explicit reset of expectations announced with the second-quarter 2026 report that triggered selling and analyst price-target cuts despite the company beating quarterly estimates.
• Noise with some genuine substance behind it: GLP-1 pressure on bariatric surgery, competition and price regulation in China, and rising tariffs are genuine risks the company itself acknowledges in the filing, not just market perception.
• The discount still is not enough to offset the entry multiple: despite the 39% decline, the stock still trades at 49× TTM net income, well above the terminal band of the med-tech archetype.

There is an identifiable source of discount (the guidance cut, a classic motivated-seller situation), but the price adjustment has not gone far enough to offset the elevated entry multiple — the base-scenario margin of safety is No margin of safety: the price already discounts a demanding scenario.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -13%/year (-51% total): the margin of safety protects the downside. The bull (+2%/year, +10% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• FY2026 guidance cut. The central disconfirming test: procedure growth guided to 13.5%-15.5%, well below the recent pace (>18%).
• GLP-1 (bariatric surgery). Explicitly acknowledged by the company as reducing bariatric procedures, including those performed with da Vinci.
• China (regulation and competition). Regulatory price caps since 2022 and an anti-corruption campaign in the healthcare sector that delayed tenders in 2025.
• Tariffs. US$63 million of additional cost in 2025, with the company warning they will keep rising in 2026.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 23% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 15% at a PEG of 3.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 2% (EBIT/EV) + ROIC 23% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 19% vs our 15%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -13%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: switching costs, intangibles, network effects, cost advantage, efficient scale → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 19% vs our 15%: coherent, but at the optimistic end of the range.