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Edwards Lifesciences (EW) Up 6.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Edwards Lifesciences (EW). Shares have added about 6.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Edwards Lifesciences due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Edwards Lifesciences’ Revenues Rise on Solid TAVR Unit in Q3

Edwards Lifesciences Corporation’s third-quarter 2019 adjusted earnings per share were $1.41, outpacing the Zacks Consensus Estimate by 15.6%. Moreover, the figure improved 31.8% year over year, primarily on growth in all businesses.

The company reported earnings per share of $1.30, which grew 22.6% year over year.

Sales in Detail

Third-quarter net sales improved 20.7% year over year to $1.09 billion and surpassed the Zacks Consensus Estimate by 5.5%. Additionally, underlying sales rose 19%.

Revenues were primarily driven by significant growth in Transcatheter Aortic Valve Replacement (TAVR), Transcatheter Mitral and Tricuspid Therapies (TMTT) sales and strong performance by the Surgical Structural Heart and Critical Care product lines.

Segmental Details

In the third quarter, sales in the TAVR product group amounted to $700 million, up 26% from the prior-year reported figure. Further, TAVR underlying sales grew 27% in the quarter. Per management, this solid performance can be attributed to strong therapy adoption across all geographies with notable strength in the United States.

In the United States, total TAVR procedures grew around 30% year over year. This was stronger than expected, following the recent FDA indication expansion of SAPIEN 3 and SAPIEN 3 Ultra systems. In Europe, TAVR sales improved in the teens from the year-ago quarter. Outside the United States and Europe, the company is experiencing robust TAVR adoption, driven by SAPIEN 3 performance.

Surgical Structural Heart sales in the quarter totaled $204 million, up 11% from the prior-year quarter’s figure and 3% higher on an underlying basis. Growth in the reported quarter was boosted by premium product sales, particularly through the adoption of the INSPIRIS RESILIA aortic valve that drove the adoption of surgical aortic valve procedures.

Critical Care sales totaled $180 million in the third quarter, up 10% from the year-ago quarter reportedly and 7% improvement came on an underlying basis. Per management, all the product categories contributed to the upside, bolstered by substantial growth in HemoSphere advanced monitoring platform sales.

TMTT sales totaled $10 million, primarily attributable to strong commercial sales for the PASCAL transcatheter mitral system in Europe. Notably, Edwards Lifesciences continues to invest in its transcatheter mitral and tricuspid portfolio as well as plans to achieve clinical and regulatory milestones in 2019. For 2019, the company now expects TMTT revenues to be below $40 million.

Margins

In the third quarter, gross margin contracted 200 bps to 73.3%. Favorable impacts of foreign exchange rates and product mix were offset by spending in support of the new European device regulations and manufacturing variances.

SG&A expenses rose 13.6% year over year to $306.2 million, induced primarily by increased transcatheter structural heart field personnel-related expenses, including the expansion of the transcatheter mitral and tricuspid therapy field organization in Europe.

R&D expenditures escalated 13.6% year over year to $306.2 million due to significant investments in transcatheter structural heart programs.
However, operating margin in the quarter expanded 155 bps to 17.3% on 32.6% rise in operating income to $189 million.

Cash Position

Edwards Lifesciences exited the third quarter of 2019 with cash and cash equivalents, and short-term investments of $1.36 billion compared with $934.3 million at the end of the second quarter. Long-term debt at the end of the third quarter was $594.2 million compared with $594.1 million at the end of the second quarter.

Year-to-date cash flow from operating activities was $780 million compared with $633.8 million a year ago. Year-to-date capital expenditure rose to $182.9 million from $181.1 million a year ago.

Guidance Impressive

For 2019, Edwards Lifesciences raised adjusted earnings per share guidance to $5.50-$5.65 from $5.20-$5.40 mentioned earlier. The Zacks Consensus Estimate is pegged at $5.33, which is below the company’s guidance.

Edwards Lifesciences now projects total revenues around the upper end of $4-$4.3 billion stated previously. The Zacks Consensus Estimate for the same of $4.23 billion falls within the company’s guided range.

For fourth-quarter 2019, Edwards Lifesciences forecasts total sales between $1.12 billion and $1.16 billion. The Zacks Consensus Estimate is pegged at $1.12 billion, which lies at the lower end of the company’s envisioned range. Adjusted earnings per share is anticipated between $1.40 and $1.55. The Zacks Consensus Estimate for the same of $1.40 is at the lower end of the company’s guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 5.89% due to these changes.

VGM Scores

At this time, Edwards Lifesciences has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Edwards Lifesciences has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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