Intuitive Surgical's Worst Stretch in Years Isn't Scaring Wall Street -- Here's What Analysts Are Focused On Instead

Intuitive Surgical (NASDAQ: ISRG) has many qualities that appeal to investors, from a fantastic moat to a strong track record of earnings growth. But in recent months, that hasn't been enough to lift the stock. This robotic surgery leader has seen its stock price slide more than 30% so far this year.

Investors might be focusing on a slowdown in U.S. procedure growth, particularly in surgeries that can be postponed. And though overall growth still is climbing in the double digits, this may prompt investors to think twice before buying the stock.

But analysts, with an overwhelming majority of buy recommendations, aren't scared by the stock's worst stretch in years. Let's consider what they're focused on instead.

Image source: Getty Images.

A similar tough period

First, let's take a look back in time to the stock's previous tough period. The last time Intuitive Surgical found itself in a similar position was in 2022, when the stock sank more than 40% from January through August. At that time, too, investors worried about pressure on procedure growth -- during phases of the pandemic, hospitals focused on treating coronavirus patients, and that resulted in the postponement of many elective surgeries. Meanwhile, as interest rates climbed, investors shied away from stocks that, like Intuitive Surgical, generally trade at premium valuations.

But here's the good news: Intuitive Surgical stock didn't remain in the doldrums. It then went on to gain over the next few years and even reached a record high last year.

Now, let's take a look at Intuitive Surgical's business. The company is the global leader in robotic surgery, with a market share of more than 70%. Intuitive Surgical's flagship Da Vinci robot is used for a wide range of minimally invasive procedures, from hernia repair to gallbladder surgery. Over time, this has helped the company consistently deliver growth in revenue and profit -- and generate strong returns on its investments.

ISRG Revenue (Annual) data by YCharts

What I like most about Intuitive Surgical is the company's fantastic moat, or competitive advantage, and its recurring revenue. I'll explain. Surgeons train on Da Vinci robots, so they are used to using them, and hospitals have invested millions of dollars in Da Vinci systems and want to amortize that investment. For those reasons, hospitals probably won't easily switch to a competitor, and this represents a moat for the company.

Intuitive Surgical's recurring revenue

As for the recurring revenue, this is linked to Intuitive Surgical's sales of instruments and accessories needed for Da Vinci-guided surgeries. So once a hospital invests in a Da Vinci, the spending isn't over -- it continues to buy the necessary tools for procedures, and that actually makes up the lion's share of Intuitive Surgical's revenue. In the recent quarter, for example, instruments and accessories generated $1.7 billion in revenue, while the placement of systems brought in $685 million. This is positive because it shows that, when a hospital invests in a Da Vinci, the revenue opportunity for Intuitive Surgical is just beginning.

Wall Street surely appreciates those two elements I just talked about, and it's part of the reason analysts remain bullish on the stock. But, right now, here's one thing analysts are particularly focused on -- and it's the reason they're not worried about the recent stock performance.

This is the trend we're seeing in systems placements. In the most recent quarter, Intuitive Surgical placed 468 Da Vinci systems, up from the placement of 395 in the same period a year ago. This helped the company grow its installed base to 11,710 systems as of June 30, a 12% gain over the year-earlier period.

This shows that hospitals continue to heavily invest in robotic systems -- and they wouldn't be doing this if they didn't project an increased need for them in the years to come. That bodes well for Intuitive Surgical's growth moving forward, even if it traverses a slow patch from time to time.

All of this explains why Wall Street isn't scared of Intuitive Surgical's recent stock performance -- and it makes Intuitive Surgical an excellent stock to buy and hold.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends the following options: long January 2028 $520 calls on Intuitive Surgical and short January 2028 $530 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.