Here's Why You Should Hold on to Edwards Lifesciences for Now
Edwards Lifesciences Corporation EW has been gaining from strong segmental growth and robust product demand. Its international performance has also been impressive. However, the coronavirus pandemic has severely affected the company. A stiff competitive landscape is another headwind.
Over the past year, the Zacks Rank #3 (Hold) stock has outperformed its industry. The stock has gained 11.1% compared with 8.9% growth of the industry and 5.7% 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 $44 billion. The company projects 16.1% growth for the next five years and expects to maintain strong segmental performance. The company surpassed estimates in three of the trailing four quarters and missed estimates in one, with the average positive surprise being 8.8%.
Let’s delve deeper.
Solid Critical Care Business: We are optimistic about the growing demand for disposable pressure monitoring devices used in intensive care units despite the pandemic. Geographically, in the first quarter of 2020, the company registered strong growth in Europe, one of the epicentres of the virus, on robust demand for the TruWave disposable pressure monitoring devices.
The company has received FDA's approval to begin with investigational device exemption for its Harpoon Beating Heart Mitral Valve Repair System.
Promising Transcatheter Mitral and Tricuspid Therapies (TMTT) Segment: Edwards Lifesciences’ strong momentum on increased adoption of the PASCAL mitral valve system in Europe buoys optimism. The FDA clearance for the CLASP IITR Pivotal Trial to study the PASCAL system in patients with symptomatic severe tricuspid regurgitation (TR), FDA clearance for an early feasibility study and Breakthrough Device designation for the EVOQUE tricuspid replacement valve system are the other highlights.
The company received the CE mark for its PASCAL transcatheter valve repair system in May for treating European patients suffering from TR. Further, the company received regulatory clearance in China for its SAPIEN 3 transcatheter heart valve.
Impressive Q1 Results: Edwards Lifesciences’ strong first-quarter 2020 results buoy optimism. The year-over-year improvement in revenues resulted from 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.
Downsides
Coronavirus Impact: 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 TMTT 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.
Stiff 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 severe competition to impact Edwards Lifesciences in the TAVR market.
Estimate Trend
Edwards Lifesciences has been witnessing a negative estimate revision trend for 2020. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 13.6% south to $1.65.
The Zacks Consensus Estimate for the company’s second-quarter 2020 revenues is pegged at $769.1 million, which suggests a 29.2% fall from the year-ago quarter’s reported number.
Key Picks
Some better-ranked stocks from the broader medical space are Quest Diagnostics Incorporated DGX and Hologic, Inc. HOLX.
Quest Diagnostics’ long-term earnings growth rate is projected at 7.6%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hologic’s long-term earnings growth rate is estimated at 7%. The company presently has a Zacks Rank #2 (Buy).
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