Pat McKeough responds to many requests from members of his Inner Circle for specific stock tips, as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “Our Top U.S. Stocks” on Thursday.
This week an Inner Circle member asked us about a company that is in the forefront of treating heart disease. Edwards Lifesciences makes the bulk of its money from heart valve technology and the rest on critical care, or hemodynamic monitoring. Pat examines Edwards’ leading products and particularly the surge in revenue from the Transcatheter Heart Valve. He also considers whether the company’s shares can continue their rise.
Q: Good day, Pat: Can you please provide your opinion on Edwards Lifesciences? Thanks.
A: Edwards Lifesciences, (symbol EW on New York; www.edwards.com), develops technologies for treating heart disease and monitoring critically ill patients’ cardiovascular systems.
The company operates in three segments:
Surgical Heart Valve Therapy (42% of revenue): Edwards makes a range of heart valves and other products that are used to replace or repair a patient’s diseased or defective heart valves. These products include pericardial valves from biologically inert animal tissue sewn onto wireform stents.
Transcatheter Heart Valves (29% of sales): Transcatheter valve technology offers a less invasive means of treating heart valve disease. It’s designed to let physicians deliver replacement valves via a catheter through the body’s cardiovascular system, eliminating the need to open the chest.
Critical Care (29% of sales): This division’s products focus on hemodynamic monitoring, which aims to assess a critically ill patient’s cardiovascular system and its response to tissue oxygen demands. Hemodynamic monitoring measures the blood pressure inside the veins, heart and arteries. It also measures the blood’s flow and oxygen content.
Strong growth in Europe helps prompt 20% jump in sales for Transcatheter Heart Valve
In the three months ended June 30, 2014, Edwards’s revenue rose 11.2%, to $575.1 million from $517.2 million a year earlier. That beat the consensus estimate of $546.0 million.
The Transcatheter Heart Valve segment reported a 20.6% sales increase, to $219.7 million from $182.1 million, thanks to strong growth in Europe and the launch of the SAPIEN XT valve in Japan. The Surgical Heart Valve Therapy group’s revenue increased 4.7%, to $214.0 million from $204.3 million, on growth in all geographic regions. The Critical Care segment reported 8.1% higher revenue.
Excluding one-time items, earnings per share rose 4.8%, to $0.88 from $0.84. That was well ahead of the consensus estimate of $0.77.
Edwards holds cash of $1.5 billion, or $14.21 a share. Its $598.0 million of long-term debt is a low 5.5% of its $10.8-billion market cap.
The stock trades at a high 30.7 times this year’s forecast earnings of $3.30 a share. However, the company’s outlook is positive. It spends a high 16% of its revenue on research, so it should be able to keep developing new products like the SAPIEN XT valve.
We view Edwards Lifesciences as a hold.
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Pat McKeough responds to many requests from members of his Inner Circle for specific stock tips, as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “Our Top U.S. Stocks” on Thursday.
