HomeMost PopularInvestingEdwards Lifesciences: Scaling Heights Amid Uncharted Waters

Edwards Lifesciences: Scaling Heights Amid Uncharted Waters

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In a tumultuous market environment, Edwards Lifesciences EW hit a resounding crescendo, reaching a peak of $95.27 on Mar 14, 2024. Though the stock eased slightly to $93.36 by the session close, its ascent cannot be understated.

Over the past year, the Zacks Rank #2 (Buy) stock surged by 13.9%, its trajectory outshining the industry’s 11.5% and the S&P 500 composite’s robust 30.2% climb.

Delving deeper into its performance, Edwards Lifesciences showcased a testament to resilience with a five-year earnings growth rate of 9.9%, edging out industry competitors at 8.5%. Forecasts for 2024 indicate an expected earnings growth rate of 9.9%, surpassing the industry’s 9.2% projection. With earnings exceeding Zacks Consensus Estimates in multiple quarters, it’s evident that Edwards Lifesciences continues to defy expectations.

The recent surge in stock price stems from the optimism surrounding the upcoming Critical Care spin-off for the Surgical Structural Heart business. Bolstered by a stellar fourth-quarter 2023 performance and imminent advancements in TMTT, Edwards Lifesciences stands poised for a new phase of growth. However, lurking in the shadows are macroeconomic uncertainties and adverse currency fluctuations as potential hurdles.

Let’s now unpack the factors propelling Edwards Lifesciences to these lofty heights.

Unveiling the Catalysts

The Promise of Critical Care Spin-Off:Β December 2023 marked a strategic move by Edwards to spin off its Critical Care segment by the end of 2024. This pivotal decision, enabling a tax-free spin-off, promises a gateway for enhanced opportunities in TAVR, TMTT, Surgical patients, and fresh investments in interventional heart failure technologies.

Of particular note is the robust growth of Critical Care, evident in the business’s 11% year-over-year sales surge in the fourth quarter of 2023. This growth was fueled by advancements across all product lines, including the acclaimed Acumen IQ sensor embedded with the Hypotension Prediction Index algorithm.

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With the imminent independence as a standalone entity post-spin-off, the Critical Care segment is poised to leverage its global leadership in advanced patient monitoring, revolutionizing care delivery through AI-powered smart monitoring solutions. This strategic separation heralds a brighter tomorrow for this segment steeped in groundbreaking innovations.

Tapping into the Potential of TMTT Portfolio: Backed by insights gleaned from clinical trials and real-world applications, Edwards Lifesciences has curated a portfolio of cutting-edge transcatheter technologies catering to mitral and tricuspid patients. The notable 71% year-over-year sales surge in the fourth quarter of 2023 underscores the increased adoption of the differentiating PASCAL precision platform and the expansion into additional centers across the US and Europe.

The consistent double-digit growth in transcatheter edge-to-edge repair procedures underscores a pressing unmet patient demand. Milestones achieved in regulatory approvals include the endorsement of PASCAL Precision in Japan for degenerative mitral regurgitation and FDA approval for the SAPIEN 3 continued access program in mitral replacement. Furthermore, the EVOQUE system emerged as the pioneering transcatheter valve replacement therapy authorized for treating TR (tricuspid regurgitation) worldwide.

Shining Bright: Robust Q4 PerformanceThe commendable fourth-quarter performance of 2023 was fueled by a versatile portfolio of innovative therapies. Edwards Lifesciences notched remarkable growth across all four product categories, underscoring its robust positioning in the TAVR segment. The enthusiastic adoption and expansion of the SAPIEN 3 Ultra RESILIA platform in the US bode well for future prospects.

Challenges on the Horizon

Weathering the Storm: Macro HeadwindsDespite the post-COVID improvements, Edwards Lifesciences remains cognizant of lingering challenges, particularly in Japan and staffing constraints in the US and Europe. Escalating expenses have compounded the situation, with the fourth quarter of 2023 witnessing a 16.8% and 16.3% year-over-year surge in SG&A and R&D expenses, respectively. The quarter also endured a 416 basis points (bps) dip in gross margin and a 532 bps slide in operating margin.

Currency Conundrum:Β The pangs of foreign exchange volatility continue to plague Edwards Lifesciences, given a significant chunk of its revenues emanate from international markets. In the fourth quarter of 2023, fluctuating exchange rates chipped away 80 basis points (bps) or $9 million from reported sales growth compared to the previous year. Additionally, the gross margin for the quarter witnessed a 320 bps decline year over year due to adverse foreign exchange rates.

Other Top Contenders

In the broader medical realm, other notable performers include Cardinal Health CAH, Stryker SYK, and DaVita DVA.

Cardinal Health, boasting a Zacks Rank #2, exhibits a long-term estimated earnings growth rate of 14.2%, outpacing the industry’s 11.6% projection. The company has consistently outperformed earnings estimates, with an average surprise of 15.6% in the trailing four quarters.

Stryker, also holding a Zacks Rank #2, anticipates a solid long-term earnings growth rate of 10.3%. Its earnings have consistently surpassed estimates, with an average surprise of 5.1% in the trailing four quarters.

DaVita, with a Zacks Rank #1, eyes an estimated long-term earnings growth rate of 12.1%, trumping the industry average of 11.9%. The company has consistently surpassed earnings estimates, boasting an average surprise of 35.6% in the trailing four quarters.

In a year-over-year comparison, shares of these companies have witnessed commendable gains, reflecting industry outperformance in the midst of a dynamic market landscape.

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