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Here's Why You Should Hold on to Edwards Lifesciences for Now

Zacks Equity Research

Edwards Lifesciences Corporation EW has been gaining from robust segmental growth and increased demand for products. Its international performance has also been impressive. However, the company is getting severely affected by the coronavirus pandemic as well as a stiff competitive landscape.

Over the past year, the Zacks Rank #3 (Hold) stock has outperformed its industry. The stock has gained 29.2% compared with 9.6% growth of the industry and 4.5% rise of the S&P 500.

The renowned provider of products and technologies for treating advanced cardiovascular diseases (especially structural heart disease) has a market capitalization of $46.39 billion. The company projects 16.1% growth for the next five years and expects to maintain strong segmental performance. Further, it has a positive earnings surprise of 8.8%, on average, for the trailing three out of four quarters.


 

Let’s delve deeper.

Strong Q1 Results: Edwards Lifesciences’s better-than-expected results in first-quarter 2020 buoy optimism. The year-over-year improvement in revenues was driven by strength in Transcatheter Aortic Valve Replacement (“TAVR”) sales and strong performance of the Critical Care product line despite challenges arising from the coronavirus outbreak toward the quarter-end. TAVR recorded strong therapy adoption across all geographies, particularly the United States.

We are upbeat about the rollout of the SAPIEN 3 Ultra and clinician feedback on improved paravalvular leak performance.

Robust Critical Care Business: This segment demonstrated strong top-line growth in the first quarter driven by growing demand for disposable pressure monitoring devices used in intensive care units amid the pandemic. Geographically, the company saw robust growth in Europe, one of the epicentres of the virus, on strong demand for the TruWave disposable pressure monitoring devices.

Meanwhile, Edwards Lifesciences recently received FDA approval to start its U.S. pivotal IDE study, which is expected to initiate enrolment in the second half of 2020.

Promising Surgical Structural Heart Business: We are upbeat about Edwards Lifesciences’ strong top-line growth within its Surgical Structural Heart business led by increased adoption of premium high-value technologies and international strength. Despite first-quarter headwinds, the INSPIRIS RESILIA aortic valve continued witnessing growth across all geographies, with notable usage in more active patients.

Downsides

Coronavirus: The company’s sales began to feel the pinch toward the quarter-end as procedure volumes dropped due to COVID-19 disruptions. This hampered the company’s segmental revenues to a great extent, especially from the TAVR and Transcatheter Mitral and Tricuspid Therapies segments. It has significantly lowered its sales and earnings guidance for the second quarter as it is unable to predict the progression of COVID-19 and the extent of disruption to hospital procedures involving the company’s therapies.

Competition: The medical devices industry is highly competitive with the presence of several key players like Medtronic MDT. Notably, competitive product launches in high-end markets have dented Edwards Lifesciences’ sales in the past. Management also anticipates persistent competition to impact Edwards Lifesciences in the TAVR market.

Estimate Trend

Edwards Lifesciences has been witnessing a positive estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved 4.2% north to $4.95.

The Zacks Consensus Estimate for second-quarter 2020 revenues is pegged at $768.7 million, suggesting a 29.3% fall from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Aphria Inc. APHA and Surmodics, Inc. SRDX.

Aphria’s long-term earnings growth rate is estimated at 24.6%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Surmodics’ long-term earnings growth rate is projected at 10%. The company presently sports a Zacks Rank #1.

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Medtronic PLC (MDT) : Free Stock Analysis Report
 
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