Will ISRG Stock Drop Continue After da Vinci 5 Recall?

Core Viewpoint - Intuitive Surgical's recent recall of its da Vinci 5 robotic surgery system has been classified as a Class 2 recall by the FDA, indicating potential but not serious health risks associated with the device [1][3]. Company Performance - Following the recall notice on March 12, shares of Intuitive Surgical have declined by 2.6%, and the stock is down 16.6% since the recall was initiated on February 26. Year-to-date, the company's shares have lost 7.2%, compared to a 4% decrease in the medical instrument industry and a 4.6% fall in the S&P 500 Index [2]. - The stock has been on a downward trend since the earnings announcement in January, despite beating earnings and revenue estimates, primarily due to high valuations compared to the industry [7][8]. Recall Details - The recall was prompted by complaints regarding the foot tray pedal spring failing, which could lead to the pedal remaining pressed. The Class 2 status suggests that while there may be temporary health consequences, serious adverse effects are unlikely [3]. - The company is actively working to resolve the issue and has communicated with affected consignees through an Urgent: Medical Device Correction notice [3]. Future Outlook - The company's sales growth for 2025 is expected to heavily rely on the adoption of the da Vinci 5 system, with a full commercial launch planned for mid-2025. However, the recall may delay this launch and negatively impact revenue [4][14]. - Analysts have revised earnings estimates downward for the first two quarters of 2025, indicating that margin pressures are expected to be most significant in the first half of the year [10]. Financial Pressures - Anticipated higher costs and expenses, including increased depreciation, a stronger U.S. dollar, and rising R&D investments, are expected to pressure gross and operating margins in 2025, with earnings projected to grow by only 8.6% despite a 14.4% increase in sales estimates [7][8]. - The company faces additional challenges from potential tariffs imposed by the U.S. government, which could increase production costs and affect the competitive position of the da Vinci systems [16][18]. Valuation and Market Position - Intuitive Surgical's stock is currently viewed as expensive compared to the industry, with a Zacks Rank of 3 (Hold) and Style Scores indicating a Value Score of D and a Growth Score of C [21]. - The company is advised to maintain cost control and strategic flexibility to sustain financial momentum amid these pressures [18].