Will ISRG Stock Drop Continue After da Vinci 5 Recall?

Intuitive Surgical’s ISRG recent device recall for its latest robotic surgery system, da Vinci 5, has been categorized by the FDA as a Class 2 recall, a grade below the most serious Class I recalls.Shares of the company have declined 2.6% following the recall notice posted on its site on March 12. However, ISRG stock is down 16.6% since the company initiated the recall on Feb. 26. The company’s shares have lost 7.2% so far this year compared with the medical instrument industry’s 4% decrease and S&P 500 Index’s 4.6% fall.ISRG’s recall for its da Vinci 5 system was initiated following complaints concerning the foot tray pedal spring of the system failing, resulting in the pedal remaining pressed. The Class 2 status of the recall implies that the pressed pedal may cause temporary or medically reversible adverse health consequences, but the probability of serious adverse health consequences is remote. The company is working toward resolving the issue and has issued an Urgent: Medical Device Correction mail to affected consignees.However, any delay in correction of the issue or any further setback to da Vinci 5 is likely to hurt ISRG’s prospects, affecting its share price. The company’s outlook for 2025 sales growth is anticipated to be primarily driven by da Vinci 5 adoption. Meanwhile, the recall and other challenges may dim its prospects.YTD ISRG Stock Price PerformanceImage Source: Zacks Investment ResearchISRG Stock Price Breaches 200-DMAISRG stock has been declining since it announced its earnings results in January despite earnings and revenues beating their respective estimates. This was likely due to the significantly higher valuation of the company than its industry following a strong uptrend in 2024. Moreover, the company’s gross margin and operating margins for 2025 are likely to be lower than the 2024 figures due to higher depreciation expenses from new facilities, a stronger U.S. dollar, the growth of newer platforms currently carrying lower margins, higher R&D investments and increased legal costs. This also evident from the fact that while the sales estimates for 2025 imply 14.4% growth, earnings are likely to increase only 8.6%.This anticipated higher cost and expenses were the primary factors that caused the fall in the stock in the past two months, as well as the breach of the 200-DMA, which implies further weakness for the stock. Also, the valuation remains expensive, prompting more corrections in the share price.ISRG Share Price vs 200-DMAImage Source: Zacks Investment ResearchAnalysts have been revising earnings estimates downward for the first two quarters of 2025, implying that the majority of margin pressures will occur in the first half of this year.ISRG Earnings Estimate DeclineImage Source: Zacks Investment ResearchWill da Vinci 5 Recall Result in Downtrend?ISRG is majorly dependent on the adoption of da Vinci 5 for its top-line growth in 2025. The company has planned the full commercial launch of da Vinci 5 in mid-2025 and expects more hospitals to upgrade from Xi to da Vinci 5, boosting system placements.However, the recent recall of da Vinci 5 may result in a delay in the full launch, which may hurt the top line. The company’s margins are already reeling under pressure, and a decline in the top line will affect it further, leading to a fresh fall in share price. Investors should look for updates related to the da Vinci recall and ISRG’s launch plans. Any setback will likely lead to a correction in share price.Apart from the recall, the recent tariff imposition by the U.S. government on its trading partners can hurt da Vinci 5 sales. The company faces potential financial headwinds from new tariffs, particularly given its reliance on manufacturing in Mexico. Tariffs could increase production costs, squeezing margins and potentially leading to higher prices for hospitals. Moreover, there can be a supply snag as well that may hurt the top line. While ISRG has strong pricing power, cost increases could slow the adoption of its da Vinci systems and adversely impact its competitive position, especially amid rising competition. The company is evaluating responses, including supply chain adjustments or price increases. If tariffs are significant, they could weigh on ISRG’s profitability and long-term growth, making cost control and strategic flexibility critical for sustaining its financial momentum.The company’s top line is likely to be under pressure from capital constraints in Europe and pressures in the U.S. bariatric segment, which are anticipated to be offset by strong da Vinci 5 sales. Hence, any setback to da Vinci will be detrimental.ISRG P/E (Forward 12 Months) vs IndustryImage Source: Zacks Investment ResearchISRG currently carries a Zacks Rank #3 (Hold). Moreover, the Style Scores don’t look quite promising. The company has a Value Score of D and a Growth Score of C. The valuation chart also shows the significant premium for ISRG stock compared with the industry. Although the valuation has declined from its 5-year high and has started moving toward the five-year mean, it still looks expensive. Moreover, the Momentum score of ‘A’ implies the continuation of the following trend.As such, we believe that investors may hold the stock for now, but we caution against any new position.Other Stocks to ConsiderSome better-ranked stocks in the broader medical space are Masimo MASI, Boston Scientific BSX and Aveanna Healthcare AVAH. At present, Masimo sports a Zacks Rank #1 (Strong Buy), whereas Boston Scientific and Cardinal Health carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Masimo’s shares have gained 1.7% so far this year. Estimates for MASI’s 2025 EPS have increased 11.9% to $5.27 in the past 30 days. MASI’s earnings beat estimates in each of the trailing four quarters, the average surprise being 14.41%. In the last reported quarter, it posted an earnings surprise of 16.6%.Estimates for Boston Scientific’s 2025 EPS have remained stable at $2.85 in the past 30 days. Shares of the company have surged 8.8% so far this year compared with the industry’s growth of 6.4%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.25%. In the last reported quarter, it delivered an earnings surprise of 7.69%.Estimates for Aveanna Healthcare’s 2025 EPS have remained stable at 1 cent in the past 30 days. Shares of the company have gained 13.5% so far this year compared with the industry’s 1.4% growth. AVAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 135.00%. In the last reported quarter, it delivered an earnings surprise of 300.00%.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Boston Scientific Corporation (BSX): Free Stock Analysis Report Intuitive Surgical, Inc. (ISRG): Free Stock Analysis Report Masimo Corporation (MASI): Free Stock Analysis Report Aveanna Healthcare Holdings Inc. (AVAH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks