Edwards' 2013 Guidance Encourages
Edwards Lifesciences Corporation (EW) recently announced solid sales and earnings projections for 2013. This aided the company, which develops heart valves and conducts hemodynamic monitoring, regain investors’ confidence, which had been dented by a dismal third quarter 2012 performance. Accordingly, the company’s share price shot up 6% on Tuesday’s closing.
2013 Guidance
The company expects strong double-digit sales and earnings growth for the coming fiscal. The company anticipates underlying sales growth of 13%–16% at constant exchange rate or CER, representing revenue of $2.18–$2.23 billion (based on the 2012 guidance range of $1.90−$1.97 billion) in the year on the back of the ongoing launch of Sapien transcatheter heart valve in the U.S. and the growing market for the transcatheter heart valves worldwide.
The current Zacks Consensus Estimate of $2.12 billion for 2013 remains below the expected range.
Moreover, for 2013, Edwards expects the adjusted earnings per share (EPS) in the band of $3.21–$3.31,more than 25% higher than the 2012 adjusted EPS guidance of $2.54−$2.58 as well as ahead of the Zacks Consensus Estimate of $3.18 per share. Besides, gross profit margin is expected to remain at 74%–76%. Free cash flow is expected to remain strong at $300–$340 million.
Edwards noted that its bottom-line growth projection considered the anticipated impact of the medical device excise tax and the expected cost to launch the Sapien XT transcatheter heart valve in Japan.
The global sales for transcatheter valves are expected to range from $710–$790 million in 2013, representing annualized growth rate of 30%–45%. Also, transcatheter valve sales in the U.S. are likely to be within $390–$440 million. More to that, Surgical Heart Valve Therapy and Critical Care sales for 2013 are expected in the range of $800–$840 million and $560–$600 million, respectively.
Reiterate 2012 Guidance
In addition, Edwards reiterated its fiscal 2012 guidance. The company expects sales in 2012 to be at the bottom of the previous range of $1.90−$1.97 billion, representing underlying growth of more than 15%. The outlook for adjusted EPS stands at $2.54−$2.58.
The company expects the U.S. THV sales in the range of $230−$240 million in 2012. Global THV sales outlook for the year was $530−$560 million. Guidance for the surgical heart valve Therapy segment stood at $775−$805 million (with $115 million from cardiac surgery system sales). Sales in Total Critical care is likely to be at the low end of the previous range of $550−$580 million, which includes approximately $50 million of vascular sales.
Upcoming Developments
Edwards remains optimistic about its fiscal 2013 performance and strongly believes to achieve the targeted goal with ease. The company expects to invest 15% of its sales research and development during 2013. The company noted that the US clinical and regulatory progress of the Sapien XT transcatheter valve remains on track.
The company is currently working on the regulatory approval and reimbursement for Sapien XT in Japan that is expected by the end of 2013. The company is also progressing well with its two new transcatheter valve platforms, Sapien 3 and Centera and expects CE Mark approval for the Sapien 3 in 2013.
Under the surgical heart valve therapy group, the company expects initiation of the European commercial launch of its Intuity valve system. Moreover, the company wants to begin the enrollment in the U.S. clinical study of GLX, its next-generation tissue technology on a surgical heart valve.
Our Recommendation
We are impressed with Edwards’ encouraging 2013 revenues and EPS outlook that sailed past our estimates. Despite the near-term headwinds of Sapien in the form of challenges in Europe and reimbursement issues,the several new research and developmental strategies and other investment initiatives taken by the company are expected to improve performance going ahead.
However we still remain concerned with the tough competitive landscape for Edwards. The company’s surgical heart valve therapy sales in the US are adversely affected by the introduction of St Jude Medical’s (STJ) pericardial valve, Trifecta, last year.
Although Edwards has the first mover advantage in the U.S. with its launch of Sapien in November 2011, the scenario in Europe is challenging given the current economic challenges and tough competition from Medtronic’s (MDT) CoreValve. Currently, Edwards retains Zacks #3 Rank (Hold) in the short term.
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