On January 10, we upgraded
Edwards Lifesciences Corp.
) to Neutral from Underperform based on its improved prospects
for 2013 as disclosed in its latest guidance for the year.
Why the Upgrade?
Edwards Lifesciences faced a challenging third quarter with
dismal performance in the international market, especially
Europe. The lower transcatheter heart valve (THV) sale in the
domestic market was a cause of concern with a delayed approval of
Sapien in high risk patients adding to the burden. Despite the
headwinds, the company witnessed year-over-year growth for top as
well as bottom lines in the most recent quarter.
While the recent results led to lower, dull outlook for 2012 for
Edwards Lifesciences, we expect the company to turn the tables in
2013. Edwards Lifesciences also expects strong double-digit sales
and earnings growth for 2013. Given that the company has
delivered positive earnings surprises in the last four quarters
with an average surprise of 5.5%, we are upbeat about its
performance for the ongoing fiscal.
However, Edwards Lifesciences continues to battle the contagion
of economic problems in Europe. Adding to the concern is the
foreign exchange headwind. To overcome these challenges, the
company plans to expand its foothold in other lucrative markets
on the heels of product approvals.
While Edwards Lifesciences enjoys the first-mover advantage for
some of its offerings, we note that FDA approval of competitors'
products has diluted sales in the past. Also worth mentioning in
this context is the tough competitive landscape with the presence
of larger players. We remain skeptical of similar advances in the
future which might result in top-line challenges.
While the company is expected to return to normalized growth in
2013, the competitive headwinds and macroeconomic uncertainty
keeps us on the sidelines. This is reflected in the nominal rise
in the Zacks Consensus Estimate for 2013 over the last two
months. Accordingly, the stock carries a Zacks Ranks #3 (Hold).
Meanwhile, other medical sector stocks worth a look are
), each carrying a Zacks Rank #1 (Strong Buy).
EDWARDS LIFESCI (EW): Free Stock Analysis
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INTUITIVE SURG (ISRG): Free Stock Analysis
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