Edwards Lifesciences Corporation EW scaled a new 52-week high of $100.10 on Jun 11, before closing the session marginally lower at $99.99.
The company’s shares have charted a solid trajectory in recent times, appreciating 45% over the past year, ahead of 19.1% growth of the industry it belongs to and 40.6% surge of the S&P 500 composite.
The company is witnessing an upward trend in its stock price, prompted by its promising Surgical Structural Heart business. The company’s long-term growth strategy to maintain leadership position in the global TAVR market looks encouraging. Further, the better-than-expected earnings outlook for the second quarter and upbeat full-year guidance buoy optimism. However, reimbursement cut and foreign exchange woes remain concerns.
Let’s delve deeper.
Key Growth Catalysts
Surgical Structural Heart, a Promising Business: Investors are optimistic about the strong adoption of the premium RESILIA tissue valves, including the INSPIRIS RESILIA aortic surgical valve and KONECT aortic valve conduit, during the first quarter. Edwards Lifesciences’ management is also upbeat about favorable patient outcomes with faster surgery and recovery times with the HARPOON Beating Heart Mitral Valve Repair System, which is a minimally-invasive therapy.
Long-Term Growth Strategy Buoys Optimism: Edwards Lifesciences expects to maintain its leadership position in the global TAVR market through increased focus on expanding patient access by actively leveraging current valve platforms for additional indications. This includes developing next-generation valve platforms and maintaining trusted relationships with clinicians, payers and regulators.
Edwards Lifesciences expects the global TAVR opportunity to exceed $7 billion by 2024. Also, management projects TMTT opportunity to reach $3 billion by 2024. Further, management expects Surgical Structural Heart opportunity to grow mid-single digits by 2026.
Upbeat Guidance: The bullish second-quarter 2021 and raised full-year 2021 guidance provided by the company during its first-quarter earnings update instill investor confidence in the stock. For the second quarter of 2021, Edwards Lifesciences expects adjusted earnings per share in the range of 54-60 cents while second-quarter 2021 revenues are projected in the range of $1.25-$1.33 billion.
For 2021, the company raised its projection of adjusted earnings per share to the range of $2.07-$2.27 from $2-$2.20. However, for the year, the company reiterated its anticipation of sales at the range of $4.9-$5.3 billion.
On the flip side, there are some factors deterring the stock’s rally of late.
Foreign Exchange Headwinds: The significant challenges Edwards Lifesciences had to face owing to unfavorable foreign currency impact have been affecting the company’s gross margin over the past few quarters. Per management, significant currency fluctuations could have a material effect on revenues, cost of sales and operational results.
Reimbursement Cut to Increase Expenses: The U.S. government's law related to the health care system includes provisions that, among other things, reduce or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and impose increased taxes. This in turn puts pressure on companies’ cost structure in the medical sector.
Zacks Rank and Key Picks
Currently, Edwards Lifesciences carries a Zacks Rank #3 (Hold).
A few better-ranked stocks from the broader medical space are Envista Holdings Corporation NVST, Inogen, Inc INGN and IDEXX Laboratories, Inc. IDXX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Envista Holdings has an estimated long-term earnings growth rate of 26%.
Inogen has an estimated long-term earnings growth rate of 33%.
IDEXX Laboratories has a projected long-term earnings growth rate of 20%.
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