On Aug 29, 2013, we upgraded our long-term recommendation on
Edwards Lifesciences Corporation
) to Neutral following stronger second-quarter 2013 results. This
medical device company carries a Zacks Rank #3 (Hold).
Why the Upgrade?
After a disappointing start to 2013, Edwards reported improved
second-quarter results on Jul 25. Adjusted EPS grew 22.4% year
over year to 82 cents, higher than the Zacks Consensus Estimate
of 76 cents and company's guided range of 75-79 cents. Sales rose
7.3% (up 10.3% at constant exchange rate or CER) to $517.2
million, better than the Zacks Consensus Estimate of $514
Growth of the Surgical Heart Valve Therapy Group and
Transcatheter Heart Valves (THV) group boost confidence. Edwards
also reported meaningful margin expansion in the quarter.
Contrary to last few quarters, performance in Southern Europe,
especially for the THV franchise was encouraging.
The recent injunction against
) CoreValve in Germany is a material upside for Edwards as it is
likely to bolster sales in the region.
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The regulatory approval and reimbursement of Sapien XT in the
high-focus Japanese market is a major positive. It makes Sapien
XT the foremost commercially available transcatheter aortic heart
valve in Japan, reflecting a major boost for Edwards.
Additionally, the untapped potential of emerging markets
represents another high-growth avenue.
On the flip side, Critical Care business recorded another quarter
of poor performance as distributor inventory problems in China
remain a cause of concern. Additionally, we are wary of
considering second-quarter sales improvement in Southern Europe
as a sustainable trend.
Edwards is also susceptible to currency headwinds. The weakening
of the Japanese yen had an adverse effect on all three operating
platforms in the first half of 2013. Adverse currency movements
are likely to drag 2013 sales by $55 million. Furthermore,
competitive landscape remains tough.
Other Stocks to Consider
While we remain on the sidelines for Edwards, medical stocks such
), carrying a Zacks Rank #1 (Strong Buy) and
LeMaitre Vascular, Inc.
), carrying a Zacks Rank #2 (Buy) warrant a look.