Why Is Edwards Lifesciences (EW) Up 3.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Edwards Lifesciences (EW). Shares have added about 3.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Edwards Lifesciences due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Edwards Lifesciences’ Revenues Rise on Solid TAVR Unit in Q2

Edwards Lifesciences’ second-quarter 2019 adjusted earnings per share (EPS) came in at $1.38. The company reported EPS of $1.14, which advanced 13.6% year over year.

Adjusted EPS outpaced the Zacks Consensus Estimate of $1.33. Moreover, the figure improved 11.3% year over year primarily on growth in all businesses.

Sales Details

Second-quarter net sales improved 11% to $1.09 billion and surpassed the Zacks Consensus Estimate of $1.05 billion. Underlying sales increased 14%.

Revenues were primarily driven by significant growth in Transcatheter Aortic Valve Replacement (TAVR), Transcatheter Mitral and Tricuspid Therapies (TMTT) sales, and strong performance by the Surgical Structural Heart and Critical Care product lines.
Segmental Details

In the second quarter, sales in the TAVR product group amounted to $678 million, up 16% from the prior-year quarter’s figure. TAVR underlying sales grew 18% in the quarter. Per management, the solid performance can be attributed to the recent clinical evidence supporting SAPIEN 3 therapy.

In Europe, TAVR sales improved in the mid-teens from the year-ago quarter. In fact, Edwards Lifesciences is continuing with the commercial introduction of the SAPIEN 3 Ultra system in Europe, which is estimated to account for major portion of TAVR sales in Europe by 2019-end. Additionally, the company's landmark PARTNER 3 low-risk trial demonstrated superiority for the SAPIEN 3 valve over surgery in the low-risk patient population.

Surgical Structural Heart sales in the quarter totaled $218 million, increasing 15% from the prior-year quarter’s figure and 2% on an underlying basis. Growth in the reported quarter was driven by sales of premium products, particularly through adoption of the INSPIRIS RESILIA aortic valve that drove an increasing share of surgical aortic valve procedures.

Critical Care sales totaled $184 million in the second quarter, up 9% from the year-ago quarter, both on a reported and an underlying basis. Per management, all the product categories contributed to this upside, bolstered by substantial growth in HemoSphere advanced monitoring platform sales in the United States.

TMTT sales totaled $7 million primarily attributable to strong commercial sales of the PASCAL transcatheter mitral system in Europe. Notably, Edwards Lifesciences continues to invest in its transcatheter mitral and tricuspid portfolio, and plans to achieve significant clinical and regulatory milestones in 2019. Additionally, the company estimates global TMTT opportunity to reach $3 billion by 2024.

Margins

In the second quarter, gross margin expanded 200 bps to 76.4%, due to favorable impacts from foreign exchange rates and product mix. However, investments in the global supply chain expansion partially offset the improvement.

SG&A expenses rose 12% year over year to $308 million, driven primarily by field personnel-related expenses, partially negated by the strengthening of the U.S. dollar.

R&D expenditures increased 25% year over year to $192 million due to substantial investments in the company's innovative transcatheter structural heart programs, including an increase in the clinical research for the PASCAL system.

However, operating margin in the quarter contracted 210 bps to 24.6%. Operating income in the quarter totaled $267.5 million, up 6.1% year over year.

Cash Position

Edwards Lifesciences exited the second quarter of 2019 with cash and cash equivalents, and short-term investments of $934.3 million compared with $956.5 million at the end of 2018. Long-term debt at the end of the second quarter was $594.1 million compared with $593.8 million at 2018-end.

Cash flow from operating activities was $341 million in the second quarter. Capital expenditures came in at $64 million for the same period. During the quarter, average diluted shares outstanding totaled 212.1 million.

Guidance Impressive

For 2019, Edwards Lifesciences raised adjusted EPS guidance to $5.20-$5.40 from the earlier view of $5.10-$5.35. The Zacks Consensus Estimate is pegged at $5.29, within the guided range.

The company now projects revenues to be in the range of $4-$4.3 billion. The Zacks Consensus Estimate stands at $4.16 billion within the projected range.

For third-quarter 2019, the company projects total sales between $1.02 billion and $1.06 billion. The Zacks Consensus Estimate stands at $1.02 billion which lies within the projected band.

For the third quarter, adjusted EPS is anticipated between $1.13 and $1.23. The Zacks Consensus Estimate is pegged at $1.25, exceeds management’s guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Edwards Lifesciences has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Edwards Lifesciences has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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