Edwards Lifesciences (EW): A Deep Dive into Its Significant Undervaluation
Edwards Lifesciences Corp (NYSE:EW) experienced a 1.5% gain in its daily stock performance, contrasting to a 3-month loss of -23.11%. Its Earnings Per Share (EPS) (EPS) stands at 2.26. Is this stock significantly undervalued? This article will provide a comprehensive valuation analysis to answer this question. Let's delve into the details.
A Snapshot of Edwards Lifesciences Corp (NYSE:EW)
Spun off from Baxter International in 2000, Edwards Lifesciences designs, manufactures, and markets a range of medical devices and equipment for advanced stages of structural heart disease. Its key products include surgical tissue heart valves, transcatheter valve technologies, surgical clips, catheters, and monitoring systems used to measure a patient's heart function during surgery. About 55% of its total sales come from outside the U.S.
The stock price of Edwards Lifesciences is currently $70.5, while its fair value according to the GF Value is $114.77, suggesting a significant undervaluation. Here is the income breakdown of Edwards Lifesciences:
An Overview of the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Edwards Lifesciences (NYSE:EW) appears to be significantly undervalued based on GuruFocus' valuation method. As the stock price of $70.5 per share is significantly below the GF Value Line, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength of Edwards Lifesciences
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Edwards Lifesciences has a cash-to-debt ratio of 2.21, ranking worse than 50.65% of 841 companies in the Medical Devices & Instruments industry. However, GuruFocus ranks Edwards Lifesciences's financial strength as 8 out of 10, suggesting a strong balance sheet.
Here is a look at the debt and cash of Edwards Lifesciences over the past years:
Profitability and Growth of Edwards Lifesciences
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Edwards Lifesciences has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $5.70 billion and an Earnings Per Share (EPS) (EPS) of $2.26. Its operating margin is 31.51%, ranking better than 94.86% of 836 companies in the Medical Devices & Instruments industry. GuruFocus ranks the profitability of Edwards Lifesciences at 10 out of 10, indicating strong profitability.
Growth is an essential factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Edwards Lifesciences is 8.1%, ranking better than 52.12% of 731 companies in the Medical Devices & Instruments industry. Its 3-year average EBITDA growth rate is 15.5%, ranking better than 59.89% of 738 companies in the same industry.
ROIC vs WACC Comparison
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Edwards Lifesciences's ROIC during the past 12 months is 23.95, while its WACC came in at 10.86.
Here is the historical comparison of Edwards Lifesciences's ROIC vs WACC:
Conclusion
Overall, the stock of Edwards Lifesciences (NYSE:EW) shows every sign of being significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 59.89% of 738 companies in the Medical Devices & Instruments industry. To learn more about Edwards Lifesciences stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
