Edwards Lifesciences (EW), the $40 billion global leader in structural heart disease innovations, is still a Zacks #2 Rank Strong Buy after reporting strong Q4 results and improved guidance for 2020 that prompted analysts to raise EPS estimates in February.
And this despite the impacts of COVID-19 on the global economy where many elective medical procedures are being deferred indefinitely until healthcare providers and facilities have more visibility about management of the pandemic disease.
Raymond James analysts issued a detailed research report this week addressing the challenges and opportunities for 20 different medical device and technology companies including Abbott Labs (ABT), Medtronic (MDT), Johnson & Johnson (JNJ) and Boston Scientific (BSX).
The analyst team looked at the percentage of revenues that might be impacted by an elective deferral and Edwards Lifesciences (EW) came out near to the top of the pack, with only 5% of procedures considered "elective, deferrable, or likely to be restricted."
This is further testament to the safety and efficacy of the Edwards TAVR (transcatheter aortic valve replacement) technology as a vital minimally-invasive solution for so many older patients with worn-out, defective or diseased heart valves who could never survive open-heart surgery.
Fourth Quarter Results, Outlook and Analyst Reaction
On January 30, EW delivered these Q4 and full-year FY19 highlights...
- Q4 sales grew 20% to $1.2 billion; underlying1 sales grew 19%
- Q4 TAVR sales grew 29%; underlying sales grew 30%
- Q4 EPS was $1.32; adjusted1 EPS grew 25% to $1.46
- Full year 2019 sales and earnings significantly exceeded original guidance
- 2020 guidance ranges increased: sales $4.6 billion to $5.0 billion; EPS $6.15 to $6.40
- SAPIEN 3 transcatheter heart valve received low risk indication expansion in Europe
Here's what I told my Healthcare Innovators group where we were buyers of the stock on the pullback after earnings...
EW reported earnings on Thursday and while missing on EPS, management also raised guidance for the year. Shares opened above $240 on the mixed-to-strong report, but then sold off all day with the broad market. Here was one of the more bullish views of the quarter and outlook...
Piper Sandler analyst Adam Maeder raised his price target for Edwards Lifesciences to $270 from $262 and reiterated an Overweight rating on the shares. The company reported Q4 results that beat consensus estimates on the top-line behind "robust" TAVR growth, but missed slightly on adjusted earnings due to one-time costs associated with changes to Cardioband manufacturing and accelerated spending to drive TAVR therapy awareness. The analyst sees room for potential upside to the company's 2020 guidance behind strength in TAVR.
In the Buy Alert on Monday (Jan 27), I told you that we could see a mixed reaction like this and therefore to only start a position under $230 before earnings, while preparing to add under $220. Now you have your chance to secure a full position.
5 other i-banks loved the quarter and outlook, including Jefferies, Stifel, Raymond James, Leerink and Oppenheimer. And all raised or maintained to an average PT of $270!
Therefore, you have the green light to buy EW under $220. Of course, you can wait and see if market volatility hands you a better bargain too.
(end of Healthcare Innovators commentary on Feb 2)
I should note that we've been trading EW for 3 years in Healthcare Innovators, initially buying shares under $100 and banking 3 separate gains of 48%, 23% and 20%. Since I believe in the company fundamentally for the long-term, we are rarely concerned about the technical swings between quarters and simply use them strategically and tactically.
Two other items worth noting here. First, many of those rosy analyst outlooks and lofty price targets are being scaled back in the current economic and market environments. Second, waiting for market volatility to hand us better bargains was definitely the right call -- I just didn't know we were going to get a 30% market correction and EW shares would be dropping under $170!
As I write this article on Thursday 3/26, I observe that smart investors were busy scooping EW bargains all week, driving shares back to $200. Here were some more recent analyst views...
Credit Suisse analyst Matt Miksic lowered the firm's price target on Edwards Lifesciences to $267 from $278 and kept an Outperform rating on the shares to reflect the potential impact of the coronavirus on the company's major businesses. The analyst reduced his sales estimates for 2020 and 2021 by 4.0% and 0.5% respectively, which now reflect organic growth of 8.3% and 16.5%. Accordingly, Miksic also reduced his EPS estimates for 2020 and 2021 by 56c and 8c to $5.70 and $7.08, respectively.
Citi analyst Joanne Wuensch initiated coverage of Edwards Lifesciences with a Buy rating and $252 price target. The analyst said the focus of the company is on their TAVR and TMTT franchises -- which she called large, growing market opportunities -- noting that the TAVR market is expected to increase to reach $7B in 2024 from $4B today and the TMTT market expected to reach $3B in 2024 from $1B estimated in 2021.
As of 3/26, the consensus revenue estimate for this year remains at $4.82 billion, representing 10.8% growth. And consensus EPS is at $6.17, also targeting a 10.8% advance.
Hydraulic Pump Engineer Creates First Successful Heart Valve
Since I've been an EW investor for years, I also always love to tell the story of its remarkable founding and success...
Edwards Lifesciences’ roots date to 1958, when Miles “Lowell” Edwards set out to build the first artificial heart.
Edwards was a 60-year-old, recently retired engineer holding 63 patents in an array of industries, with an entrepreneurial spirit and a dream of helping patients with heart disease. His fascination with healing the heart was sparked in his teens, when he suffered two bouts of rheumatic fever, which can scar heart valves and eventually cause the heart to fail.
With a background in hydraulics and fuel pump operations, Edwards believed the human heart could be mechanized. He presented the concept to Dr. Albert Starr, a young surgeon at the University of Oregon Medical School, who thought the idea was too complex. Instead, Starr encouraged Edwards to focus first on developing an artificial heart valve, for which there was an immediate need.
After just two years, the first Starr-Edwards mitral valve was designed, developed, tested, and successfully placed in a patient. Newspapers around the world reported on what they termed a “miraculous” heart surgery.
This innovation spawned a company, Edwards Laboratories, which set up shop in Santa Ana, California –- not far from where Edwards Lifesciences’ corporate headquarters is located today.
It also spawned decades more of further innovation in heart valve replacement technology, with the non-surgical catheter procedures being the most remarkable, as they give new hope to older or other at-risk patients who may not be able to withstand surgery.
Bottom line: Be a buyer of EW between $180 and $200 for the long term.
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