Edwards Lifesciences’ EW robust potential in the TAVR (Transcatheter Aortic Valve Replacement) business is poised to help it grow in the upcoming quarters. The company’s decision to sell the Critical Care arm supports its goal of developing a comprehensive structural heart portfolio. Also, sound solvency instills optimism. However, rising costs and adverse currency impacts remain concerns for the company.
In the past year, this Zacks Rank #3 (Hold) stock has dropped 11.3% against the 9.3% rise of the industry and the 24.7% growth of the S&P 500 composite.
The renowned global medical device company has a market capitalization of $40.06 billion. EW’s earnings surpassed estimates in one of the trailing four quarters and matched on three occasions, the average surprise of 0.78%.
Let’s delve deeper.
Upsides
TAVR Holds Potential: The company’s TAVR platform is positioned for continued global leadership and strong, sustainable growth. The business closed the second quarter of 2024 with 6% year-over-year growth, with Japan’s performance driven by the SAPIEN 3 Ultra RESILIA valve. Edwards continues to focus on expanding the ability of RESILIA therapy, addressing the largely untreated AS among the elderly population in Japan.
U.S. TAVR sales growth slowed due to the continued expansion of structural heart therapies, yet the company’s competitive position remained intact. In Europe, the momentum led by the newly launched SAPIEN 3 Ultra RESILIA has brought much satisfaction to the company. Alongside this, the next-generation SAPIEN X4 system is also in development.
Strong Solvency and Capital Structure: Edwards Lifesciences has a solid balance sheet position. The company exited the second quarter of 2024 with cash and cash equivalents and short-term investments of $1.99 billion, up from $1.69 billion in the first quarter, and no near-term debt payable. Long-term debt was $597.3 million, slightly up from $597 million at the first quarter-end.
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Critical Care Divestment Fuels Structural Heart Opportunities: On Jun 3, 2024, Edwards announced an agreement to sell off its Critical Care arm to BD, shifting from its previously planned tax-free spin-off of the business. The move strengthens Edwards’ balance sheet, allowing for disciplined investments in technologies for aortic, mitral, tricuspid and pulmonic patients, as well as new therapeutic areas for interventional heart failure. The company’s underlying rationale for separating Critical Care aligns with its vision to develop the most comprehensive structural heart disease portfolio.
Downsides
Escalating Expenses: In the second quarter of 2024, the company saw 9.8% and 11.9% increases in SG&A and R&D expenses, respectively, compared to last year’s same period. On a disappointing note, the second quarter posted a 76-bps decline in the gross margin, while the operating margin crashed by 246 bps.
Foreign Exchange Headwinds: We remain worried about the significant challenges Edward Lifesciences had to face owing to the unfavorable foreign currency impact that has been adversely affecting the company’s gross margin over the past few quarters. Foreign exchange rates decreased the adjusted sales growth in the second quarter by 120 basis points or $ 17.6 million compared to the prior year. The adjusted gross profit margin decreased by 60 bps year over year.
Estimate Trend
The Zacks Consensus Estimate for Edwards Lifesciences’ 2024 earnings per share (EPS) has moved to $2.71 from $2.77 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $6.44 billion. This suggests a 7.3% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are TransMedix Group TMDX, Boston Scientific BSX and Myriad Genetics MYGN.
TransMedix Group’s earnings are expected to surge 242.9% in 2024. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 287.5%. Its shares have soared 169.7% compared with the industry’s 9.3% rise in the past year.
TMDX sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Boston Scientific, carrying a Zacks Rank #2 (Buy) at present, has an estimated earnings growth rate of 17.1% compared with the industry’s 15.5%. Shares of the company have rallied 52.3% compared with the industry’s 8.4% rise over the past year.
BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.
Myriad Genetics, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 51.3% compared with the industry’s 21.4%. Shares of the company have soared 65.6% against the industry’s 3.2% fall over the past year.
MYGN’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 213.4%.
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