Intuitive Surgical, Inc.ISRGNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $263.00 per share(market-calibrated)

-47.1%

Upside to Fair Value

Current

$497.42

Pure Model

$184.86

Fair Value

$263.00

Bull Case

$248.67

Bear Case

$132.12

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor ISRG

↓

CapEx normalizing toward maintenance

Historical CapEx is 7.16% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$909M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 27.86% — below the sector mature average of 29.27%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $6.9B (27.86% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 14.50% revenue growth in Year 1, fading to 9.65% by Year 5 and 3.00% by Year 10. Revenue reaches $24.9B by Year 10 (vs $10.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $128.97/share (11.5x terminal FCF) while exit multiple gives $240.74/share (31.9x terminal FCF). The 24x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $497.42. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.16% indicates efficient cash generation. FCF reaches $6.0B by Year 10 (24.30% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.66

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)11.98%

Cost of Debt

Pre-tax Cost of Debt0.00%

Tax Rate13.13%

After-tax Cost of Debt0.00%

Equity Weight (E/V)99.83%

Debt Weight (D/V)0.17%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (99.83% × 11.98%) + (0.17% × 0.00%)

= 11.96%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$11.5B	$15.0B	$18.9B	$21.9B	$24.9B
EBIT	$3.2B	$4.2B	$5.3B	$6.1B	$6.9B
Tax	$422M	$549M	$691M	$801M	$909M
NOPAT	$2.8B	$3.6B	$4.6B	$5.3B	$6.0B
+ Depreciation	$515M	$671M	$845M	$979M	$1.1B
- Capex	$825M	$952M	$1.0B	$1.0B	$870M
- Δ NWC	$438M	$565M	$499M	$429M	$217M
Free Cash Flow	$2.0B	$2.8B	$3.9B	$4.8B	$6.0B
Discount Factor	0.893	0.713	0.568	0.454	0.323
Present Value	$1.8B	$2.0B	$2.2B	$2.2B	$2.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$6.0B

Terminal Growth Rate3.00%

WACC11.96%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$69.4B

PV of Terminal Value$22.4B

Exit Multiple Method

Year 10 EBITDA$8.0B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$192.9B

PV of Terminal Value$62.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$20.5B

PV of Terminal Value$22.4B

Enterprise Value$43.0B

(-) Net Debt-$3.1B

Equity Value$46.0B

Shares Outstanding357M

Price per Share$128.97

Exit Multiple Method

PV of Projected FCFs$20.5B

PV of Terminal Value$62.3B

Enterprise Value$82.9B

(-) Net Debt-$3.1B

Equity Value$85.9B

Shares Outstanding357M

Price per Share$240.74

Pure Model Fair Value

$184.86

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
9.96%	$218.80	$221.83	$225.30	$229.31	$233.98
10.96%	$198.64	$200.83	$203.30	$206.09	$209.29
11.96%	$181.42	$183.05	$184.86	$186.88	$189.15
12.96%	$166.51	$167.74	$169.10	$170.60	$172.26
13.96%	$153.44	$154.39	$155.43	$156.57	$157.82

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$132.12

-73.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 2.08

Base Case

$184.86

-62.8% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.66

Bull Case

$248.67

-50.0% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.41

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth14.50%

Year 3 Revenue Growth14.34%

Year 5 Revenue Growth9.65%

Year 7 Revenue Growth6.99%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin27.86%

Terminal EBIT Margin29.27%

Tax Rate13.13%

Historical Capex / Rev7.16%

Terminal Capex / Rev3.50%

NWC / Revenue30.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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