ISRG's Margins Contract in Q4: Will Tariffs Continue to Hurt in 2026?

Intuitive Surgical’s ISRG fourth-quarter performance highlights notable financial resilience as the company maintained operating margins at 37% despite meaningful external cost pressures. A key headwind was tariffs, which created an approximate 95 basis point drag on fourth-quarter margins, alongside higher facility costs and an unfavorable mix from newer platforms like da Vinci 5 and Ion.

ISRG demonstrated strong execution in offsetting these pressures. Management pointed to product cost reductions, component savings and manufacturing scale efficiencies as key levers that partially mitigated tariff impacts.

Continued procedure growth (up 18% in fourth quarter) and rising recurring revenue — now 81% of total revenues — also contributed to operating leverage, reinforcing the company’s ability to absorb incremental costs without materially eroding profitability.

This resilience is not a one-off. For full-year 2025, operating margins improved modestly despite tariff exposure, suggesting that ISRG’s cost discipline and scale advantages are structurally embedded. The company’s expanding installed base and rising utilization further enhance fixed-cost absorption, providing a buffer against external shocks such as tariffs.

Management’s 2026 gross margin guidance of 67-68% implies continued stability, even as tariff headwinds are expected to increase to roughly 1.2% of revenues. While mix shifts toward newer platforms and ongoing investments in facilities may create incremental pressure, these are expected to be offset by continued cost optimization initiatives.

Overall, ISRG appears to be absorbing tariff-related headwinds better than initially feared, leveraging its scale, recurring revenue strength, and operational efficiencies. This positions the company to sustain high-margin growth even in a more challenging cost environment, underscoring the durability of its business model.

Peer Updates

Boston Scientific BSX delivered strong profitability, expanding adjusted operating margins by 100 basis points to 28% in 2025, reflecting robust revenue growth and operating leverage. However, tariffs remain a structural headwind, with management indicating that annualized tariff impacts will offset favorable product mix in 2026, keeping gross margins broadly flat.

Boston Scientific is mitigating these pressures through scale efficiencies, disciplined reinvestment and supply-chain optimization. Continued innovation-led growth and portfolio mix improvements are expected to drive 50-75 bps operating margin expansion in 2026, demonstrating Boston Scientific’s ability to absorb tariff-related costs while sustaining margin progression.

Henry Schein HSIC delivered stable but constrained operating margin performance in fourth-quarter 2025, with non-GAAP operating margin at 7.42%, essentially flat year over year, as product mix pressures — particularly higher growth in lower-margin value implants — offset underlying operating leverage.

Tariffs were not a material drag on reported results, though management flagged them as a forward risk, assuming their impact can be mitigated in 2026. Henry Schein is addressing tariff exposure through price pass-throughs to customers and alternative sourcing strategies, while also driving efficiency via automation, private-label expansion, and cost optimization initiatives. These measures, along with a shift toward higher-margin technology and specialty businesses, position Henry Schein to gradually expand margins despite external cost pressures.

ISRG’s Price Performance, Valuation and Estimates

Shares of ISRG have risen 7.7% over the past six months against a 5.4% decline for the industry.

Image Source: Zacks Investment Research

From a valuation standpoint, Intuitive Surgical trades at a forward price-to-earnings ratio of 46.11, above the industry average. But, it is still lower than its five-year median of 70.91. ISRG carries a Value Score of D.

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for Intuitive Surgical’s 2026 earnings implies a 12.7% rise from the year-ago period’s level.

Image Source: Zacks Investment Research

The stock currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Beyond Nvidia: AI's Second Wave Is Here

The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. Little-known AI firms tackling the world's biggest problems may be more lucrative in the coming months and years.

See

Want 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

Henry Schein, Inc. (HSIC): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research