After initially reducing their holdings in Intuitive Surgical (ISRG, Financial) due to lowered FY25 gross margin guidance, investors have reversed course, driving the stock higher. This change in sentiment was spurred by President Trump's softened stance on China tariffs. He indicated that the current 145% reciprocal tariffs could be significantly reduced if a U.S.-China deal is reached.
This development is crucial for ISRG, a robotic surgery equipment maker, which imports many components from China. The company had projected non-GAAP gross margins of 65.0-66.5% for FY25, down from an earlier estimate of 67.0-68.0%, due to these tariffs. Management also warned that tariffs could financially pressure hospitals, leading to a global reprioritization of capital budgets.
With the potential tariff reduction, investors speculate that ISRG could meet its previous margin guidance. Coupled with positive Q1 trends, the stock is approaching its April highs.
- In Q1, ISRG reported strong earnings and revenue of $1.81 and $2.25 billion, respectively, marking a 19.2% year-over-year increase, surpassing analyst expectations. The worldwide da Vinci procedure growth remained robust at +17%, exceeding the prior guidance of +13-16%.
- Procedure growth was driven by general surgery in the U.S. and strong performance in India, Korea, and the U.K. ISRG placed 367 da Vinci systems in the quarter, including 147 of the latest da Vinci 5 systems. Utilization rates improved, with a 2% increase for multi-port platforms, 26% for single-port (SP) platforms, and 5% for Ion, the minimally invasive bronchoscopy platform.
- The rollout of da Vinci 5 is progressing well, with a broad launch expected next quarter.
- ISRG raised its FY25 procedure growth outlook to +15-17%. The fluid trade policy means FY25 margins are not yet finalized, but ISRG may return to its previous margin forecasts. The company is focused on ensuring product supply, optimizing production costs, and adjusting its supply chain strategy and pricing.
ISRG's strong Q1 results were overshadowed by tariff concerns impacting its margins. However, the potential for a significant reduction in China tariffs has quickly revitalized the stock. Reports suggest tariffs could drop to as low as 50%, a positive development for ISRG. Meanwhile, the da Vinci 5 rollout is on track, and global procedure and utilization growth remain robust, positioning ISRG to sustain its positive momentum.
