Stock Analysis on Net
Stock Analysis on Net

Intuitive Surgical Inc. (NASDAQ:ISRG)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Intuitive Surgical Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 18.03%
01 FCFE0 1,303,800
1 FCFE1 1,473,547 = 1,303,800 × (1 + 13.02%) 1,248,479
2 FCFE2 1,681,239 = 1,473,547 × (1 + 14.09%) 1,206,879
3 FCFE3 1,936,282 = 1,681,239 × (1 + 15.17%) 1,177,659
4 FCFE4 2,250,833 = 1,936,282 × (1 + 16.25%) 1,159,876
5 FCFE5 2,640,686 = 2,250,833 × (1 + 17.32%) 1,152,927
5 Terminal value (TV5) 438,164,771 = 2,640,686 × (1 + 17.32%) ÷ (18.03% – 17.32%) 191,303,372
Intrinsic value of Intuitive Surgical Inc. common stock 197,249,192
 
Intrinsic value of Intuitive Surgical Inc. common stock (per share) $553.05
Current share price $606.57

Based on: 10-K (reporting date: 2024-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.78%
Expected rate of return on market portfolio2 E(RM) 14.43%
Systematic risk of Intuitive Surgical Inc. common stock βISRG 1.37
 
Required rate of return on Intuitive Surgical Inc. common stock3 rISRG 18.03%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rISRG = RF + βISRG [E(RM) – RF]
= 4.78% + 1.37 [14.43% – 4.78%]
= 18.03%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Intuitive Surgical Inc., PRAT model

Microsoft Excel
Average Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in thousands)
Net income attributable to Intuitive Surgical, Inc. 2,322,600 1,798,000 1,322,300 1,704,600 1,060,600
Revenue 8,352,100 7,124,100 6,222,200 5,710,100 4,358,400
Total assets 18,743,200 15,441,500 12,974,000 13,555,000 11,168,900
Total Intuitive Surgical, Inc. stockholders’ equity 16,433,700 13,307,600 11,041,900 11,901,100 9,731,500
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 27.81% 25.24% 21.25% 29.85% 24.33%
Asset turnover3 0.45 0.46 0.48 0.42 0.39
Financial leverage4 1.14 1.16 1.17 1.14 1.15
Averages
Retention rate 1.00
Profit margin 25.70%
Asset turnover 0.44
Financial leverage 1.15
 
FCFE growth rate (g)5 13.02%

Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).

2024 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income attributable to Intuitive Surgical, Inc. ÷ Revenue
= 100 × 2,322,600 ÷ 8,352,100
= 27.81%

3 Asset turnover = Revenue ÷ Total assets
= 8,352,100 ÷ 18,743,200
= 0.45

4 Financial leverage = Total assets ÷ Total Intuitive Surgical, Inc. stockholders’ equity
= 18,743,200 ÷ 16,433,700
= 1.14

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 25.70% × 0.44 × 1.15
= 13.02%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (216,337,415 × 18.03% – 1,303,800) ÷ (216,337,415 + 1,303,800)
= 17.32%

where:
Equity market value0 = current market value of Intuitive Surgical Inc. common stock (US$ in thousands)
FCFE0 = the last year Intuitive Surgical Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Intuitive Surgical Inc. common stock

FCFE growth rate (g) forecast

Intuitive Surgical Inc., H-model

Microsoft Excel
Year Value gt
1 g1 13.02%
2 g2 14.09%
3 g3 15.17%
4 g4 16.25%
5 and thereafter g5 17.32%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 13.02% + (17.32% – 13.02%) × (2 – 1) ÷ (5 – 1)
= 14.09%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 13.02% + (17.32% – 13.02%) × (3 – 1) ÷ (5 – 1)
= 15.17%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 13.02% + (17.32% – 13.02%) × (4 – 1) ÷ (5 – 1)
= 16.25%