Advertisement
U.S. markets closed
  • S&P 500

    4,594.63
    +26.83 (+0.59%)
     
  • Dow 30

    36,245.50
    +294.61 (+0.82%)
     
  • Nasdaq

    14,305.03
    +78.81 (+0.55%)
     
  • Russell 2000

    1,862.64
    +53.62 (+2.96%)
     
  • Crude Oil

    74.38
    -1.58 (-2.08%)
     
  • Gold

    2,091.70
    +34.50 (+1.68%)
     
  • Silver

    25.90
    +0.24 (+0.92%)
     
  • EUR/USD

    1.0885
    -0.0008 (-0.08%)
     
  • 10-Yr Bond

    4.2260
    -0.1260 (-2.90%)
     
  • GBP/USD

    1.2714
    +0.0086 (+0.68%)
     
  • USD/JPY

    146.7610
    -1.4040 (-0.95%)
     
  • Bitcoin USD

    39,650.75
    +829.88 (+2.14%)
     
  • CMC Crypto 200

    802.76
    +11.20 (+1.41%)
     
  • FTSE 100

    7,529.35
    +75.60 (+1.01%)
     
  • Nikkei 225

    33,431.51
    -55.38 (-0.17%)
     

Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide

Edwards Lifesciences Corp (NYSE:EW) recorded a daily loss of 0.97%, with a 3-month loss of 20.58%. Despite these downturns, the company posted an Earnings Per Share (EPS) (EPS) of 2.26. This raises the question: Is the stock significantly undervalued? To answer this, we delve into a comprehensive valuation analysis. We invite you to read on for a thorough understanding of Edwards Lifesciences' intrinsic value.

Company Introduction

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. The firm derives about 55% of its total sales from outside the U.S. With a stock price of $72.31 and a GF Value of $114.52, Edwards Lifesciences appears to be significantly undervalued.

Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide

Understanding GF Value

The GF Value is a unique valuation model that provides an estimation of a stock's intrinsic value. It's computed based on three factors: historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page offers an overview of the fair value at which the stock should ideally trade.

Edwards Lifesciences (NYSE:EW), with its current price of $72.31 per share and a market cap of $44 billion, shows every sign of being significantly undervalued. Our GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.

Since Edwards Lifesciences is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.

Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide

Link: These companies may deliver higher future returns at reduced risk.

Assessing Financial Strength

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, which ranks worse than 50.77% of 843 companies in the Medical Devices & Instruments industry. Based on this, GuruFocus ranks Edwards Lifesciences's financial strength as 8 out of 10, suggesting a strong balance sheet.

Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide

Profitability and Growth

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Edwards Lifesciences has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $5.70 billion and Earnings Per Share (EPS) of $2.26. Its operating margin of 31.51% is better than 94.72% of 833 companies in the Medical Devices & Instruments industry. Overall, GuruFocus ranks Edwards Lifesciences's profitability as strong.

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Edwards Lifesciences is 8.1%, which ranks better than 52.12% of 731 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth is 15.5%, which ranks better than 60.16% of 738 companies in the Medical Devices & Instruments industry.

Evaluating ROIC vs WACC

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Edwards Lifesciences's ROIC was 23.95, while its WACC came in at 10.69.

Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling Edwards Lifesciences (EW)'s Value: Is It Really Priced Right? A Comprehensive Guide

Conclusion

In conclusion, 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 strong. Its growth ranks better than 60.16% 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.

To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

Advertisement