Edwards Lifesciences Corporation (EW) is well-poised to grow in the coming quarters due to its robust second-quarter 2023 performance. The increased adoption of the company’s life-saving therapies aided the top line.
TMTT (Transcatheter Mitral and Tricuspid Therapies) sales were driven by overall transcatheter edge-to-edge repair procedure growth as well as the ongoing launch and growing adoption of the PASCAL Precision system in Europe and the United States. At the second quarter-end, the company had sufficient liquidity to meet its debt obligations.
However, a contraction of margins and operating in a competitive landscape are concerning for the company. In the past year, this Zacks Rank #3 (Hold) stock has decreased 20.5% compared with the 3.2% fall of the industry and a 5.5% rise of the S&P 500 composite.
The renowned global medical device company has a market capitalization of $48.96 billion. Edward Lifesciences has an earnings yield of 3.17% compared to the industry’s -7.09%. EW’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 1.62%.
Let’s delve deeper.
Upsides
A Solid Second-Quarter Performance: The company recently posted second-quarter 2023 results, surpassing both earnings and revenue estimates. Across TAVR, sales were aided by improved hospital staffing levels and the continued successful launch of SAPIEN 3Ultra RESILIA. Internationally, sales grew on a constant-currency basis from all regions, including a broad-based adoption of the SAPIEN platform in Europe.
The adoption of the company’s premium RESILIA-based products across all regions is encouraging. Critical Care sales growth was led by the Smart Recovery technology portfolio and the strong uptake of the Acumen IQ sensor.
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TMTT Portfolio Holds Potential: The TMTT segment benefitted from continued strong overall procedure volumes, the adoption of the PASCAL Precision platform and the opening of new centers across the United States and Europe.
The company continued enrollment in the Class IIF pivotal trial for functional mitral patients. Within Surgical, patient enrollment continued for the MOMENTIS clinical study, which is designed to demonstrate the durability of the RESILIA tissue in the mitral position. In Critical Care, the HemoSphere monitoring platform also remained positive in the second quarter with a healthy pipeline of future opportunities.
Strong Solvency and Capital Structure: At the second quarter-end, the company had cash and cash equivalents and short-term investments of $1.51 billion compared with $1.22 billion recorded at the end of the fourth quarter of 2022.
The long-term debt was $596.7 million, which remained much lower than the quarter’s cash and cash equivalents and short-term investments level. This suggests a strong solvent position.
Downsides
Escalated Expenses: The contraction of both margins in the second quarter is discouraging. A year-over-year increase in SG&A expenses reflected performance-based compensations and investments in transcatheter field-based personnel in support of the company’s growth strategy.
A Competitive Landscape: The medical device industry is highly competitive with the presence of several competent players. In Heart Valve Therapy, Edwards Lifesciences primarily competes with Medtronic and Sorin Group, whereas players such as ICU Medical, Pulsion Medical Systems AG, LiDCO Group and Becton, Dickinson offer competition across other segments.
With CoreValve (especially on the transfemoral side), Medtronic and Boston Scientific are tough competitors for Edwards Lifesciences in the TAVR market.
Estimate Trend
The Zacks Consensus Estimate for Edwards Lifesciences’ 2023 earnings per share (EPS) has remained constant at $2.55 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $6.01 billion. This suggests an 11.7% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, DexCom DXCM and Penumbra PEN.
Haemonetics has an earnings yield of 4.10% against the industry’s -3.18%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 19.39%. Its shares have risen 20.3% against the industry’s 7.3% decline in the past year.
HAE sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
DexCom, carrying a Zacks Rank #2 (Buy) at present, has a long-term estimated earnings growth rate of 42.9% compared with the industry’s 15.9%. Shares of the company have rallied 21% against the industry’s 6% decline over the past year.
DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 28.83%.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated earnings growth rate of 56.6% for 2024 compared with the industry’s 23.8%. Shares of Penumbra have risen 41.7% against the industry’s 6% fall over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 94.24%.
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