Based on a challenging third quarter 2013 performance,
estimates for
Edwards Lifesciences
(
EW
) have witnessed a substantial decline for the forthcoming
quarters. Due to several headwinds, we downgraded the stock to
Underperform with a target price of $79.00.
Edwards reported earnings of 58 cents per share in the third
quarter of 2012 (within the guidance range of 57−61 cents per
share), surpassing the Zacks Consensus Estimate by a couple of
cents and the year-ago quarter's adjusted earnings of 38 cents
per share.
Net sales increased 8.5% year over year (sales growth at
constant exchange rate or CER was 14.3%) to $447.9 million during
the quarter, in line with the preliminary result declared earlier
this month. Reported revenues lagged Edwards' original guidance
of $465−$485 million provided along with the second quarter
results, primarily due to lower-than-expected transcatheter heart
valve ('THV') sales.
Edwards reported a less-than-expected 49.9% growth in THV
sales in the reported quarter due to disappointing performances
from both the domestic and international markets. THV sales in
the US were hampered by the provisions of the National Coverage
Decision, which did not provide reimbursement for inoperable
patients without femoral access. A clinical protocol for
reimbursement for these patients was expected earlier, but got
delayed. These issues have created a hurdle for new centers. We
also believe that identification of suitable patients who would
be able to undergo the transcatheter aortic valve replacement
(TAVR) procedures is a big challenge for Edwards.
Moreover, performance in Europe was adversely affected due to
the adoption of austerity measures, thereby resulting in
lower-than-expected procedure growth and lower pricing. This was
followed by negative growth rates in Italy and Spain as hospital
budgets were constrained with increased economic pressure.
Moreover, the treatment expansion in UK and France were not as
expected while the 13% procedure growth in Germany was at par
with the second quarter. With later-than-anticipated
approval of Sapien in high risk patients, Edwards lowered its
2012 US THV sales outlook to $230−$240 million, down from the
previous outlook of $240−$260 million. Global THV sales outlook
for the year was also brought down to $530−$560 million from the
previous outlook of $550−$600 million.
Over the last few quarters surgical heart valve sales have
been struggling due to lower-to-flat procedure volume resulting
from economic uncertainty. Moreover, sales in the US were
adversely affected due to the introduction of
St Jude Medical
's
(
STJ
) pericardial valve, Trifecta, last year. Despite the expectation
of improving sales in the fourth quarter as prior year
comparisons moderate, we remain skeptical due to the persisting
macroeconomic conditions.
Edwards retains Zacks #5 Rank (strong sell) in the short
term.
EDWARDS LIFESCI (EW): Free Stock Analysis
Report
ST JUDE MEDICAL (STJ): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research