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Edwards Lowered to Underperform

Zacks Equity Research

On Jun 7, 2013, we downgraded our long-term recommendation on Edwards Lifesciences Corporation (EW) to Underperform following dismal first-quarter results and guidance cut for 2013. This major heart valves player carries a Zacks Rank #4 (Sell).

Why the Downgrade?

On Apr 23, Edwards reported adjusted EPS of 72 cents in the first quarter of 2013. Despite growth of 35.8%, adjusted EPS missed the Zacks Consensus Estimate of 76 cents as well as the company’s guidance range of 74–78 cents. Sales rose 8.2% to $496.7 million, trailing the Zacks Consensus Estimate of $518 million and Edwards’ expectation of $505–$530 million.

The weakness was mainly attributed to poor performance in both surgical heart valve and critical care segments which posted sales decline in the first quarter. Although transcatheter heart valve (:THV) franchise recorded a 40% growth, the segment’s performance was below expectations. This also underlines a sequential slowdown for the THV business due to lower procedural growth and sales decline in Southern Europe.  

Edwards also faced other challenges in the form of low utilization rates, inventory problems in China and unfavorable macroeconomic environment in Europe among others. Given this backdrop, the company slashed its guidance for 2013.

Currently, Edwards projects revenues in the range of $2.0−$2.1 billion from previously guided range of $2.1−$$2.2 billion. The company also revised adjusted EPS in the range of $3.00−$3.10 from previously guided adjusted EPS of $3.21−$3.31.

Estimate revision trend for the ongoing as well as next year also reflects bearish sentiments looming over the stock. Following the first-quarter results, the Zacks Consensus Estimate for 2013 and 2014 has declined significantly.  

Other Stocks to Consider

While we refrain from suggesting Edwards, other medical stocks such as Myriad Genetics Inc. (MYGN), Haemonetics Corporation (HAE) and Natus Medical Inc. (BABY) are likely to do well. These stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on EW

Read the Full Research Report on MYGN

Read the Full Research Report on HAE

Read the Full Research Report on BABY

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