Insights

Strong sales fuel Edwards Lifesciences’s long-term uptrend

With the pandemic still affecting many people across the world, the importance of one’s health and physical fitness has never been more critical.

With healthcare companies at the frontline in the battle against the virus, the healthcare and medical technology sectors remain as strong stock market investment contenders now and potentially for many more years to come.

One of the strong performers in the medical devices and medical technology sector is Edwards Lifesciences. Its share price has been on a long-term uptrend for the past two decades with recent gains seeing the stock push to new highs.

When Edwards Lifesciences (NYSE: EW) released its most recent financial results, the strong figures added more fuel to the company’s strong share price growth.

With sales rebounding 49% to almost US$1.4 billion, the company also raised its full-year guidance to US$5.4 billion.

In his presentation during the results announcement (29th July 2021), EW chairman and CEO Michael Mussalem said: “We were encouraged by the clear signs of recovery during the second quarter.” He added that “Vaccine adoption in key regions has contributed to an increased number of patients seeking and, most importantly, receiving treatment.”

Who is Edwards Lifesciences and what does it do?

Edwards Lifesciences is one of the top players in the global medical devices and medical technology industry.

Based in Irvine, California, the company specialises in artificial heart valves and hemodynamic (monitoring and measurement of the heart’s functions) monitoring. It developed the SAPIEN transcatheter aortic heart valve made of cow tissue within a balloon-expandable, cobalt-chromium frame, deployed via a catheter.

Miles Edwards, an engineer, founded the company in 1958 in partnership with Dr Albert Starr, a surgeon at the University of Oregon Medical School. The duo designed, developed and successfully tested the first Starr-Edwards mitral valve in 1960. This laid the foundation for Edwards Laboratories.

In 1985, Baxter International, a healthcare industry giant, acquired Edwards but spun it off in 2000.

Edwards Lifesciences was listed on the New York Stock Exchange (NYSE) on 27 March 2000 with the share price opening at US$1.27.

The company had also been on an acquisition trail and has purchased the following:

  • Valtech Cardio was acquired for US$340 million
  • Harpoon Medical of Baltimore, Maryland acquired for $100 million. Harpoon, founded in 2013, developed a minimally invasive heart surgery product for mitral valve repair to treat degenerative mitral regurgitation.
  • CAS Medical Systems of Branford, Connecticut acquired for approximately US$100 million.

Strong financial results

With the resumption of elective surgeries and continuing need of heart patients, EW saw a strong rebound in sales during the quarter ending June 2021.

Here are some healthy figures:

  • Sales rebounded and grew 49% to $1.4 billion; underlying sales grew 44%
  • Transcatheter aortic valve replacement (TAVR) sales exceeded expectations and grew 52%; underlying sales grew 48%. TAVR is considered a minimally invasive procedure to replace a narrow aortic valve that doesn’t open properly.
  • 2021 sales guidance raised to $5.2 to $5.4 billion from $4.9 to $5.3 billion
  • 2021 adjusted EPS guidance raised to the high end of the previous $2.07 to $2.27 range

Business segments deliver upbeat results

EW has four core business segments, which all delivered strong results for the June quarter.

  1. Transcatheter Aortic Valve Replacement (TAVR) – global sales in this segment amounted to US$901.5 million, up 51.7% from the previous year. On an underlying basis, growth was 47.5%. In the United States, total TAVR sales grew 50% year over year. Outside the United States, total TAVR sales increased 40% on a year-over-year basis.
  2. Transcatheter Mitral and Tricuspid Therapies (TMTT) sales totalled US$22.1 million, up 259.3% from the prior year figure on a reported basis. On an underlying basis, the improvement was 231.2%.
  3. Surgical Structural Heart’s sales reached US$237.4 million, up 47.5% from the year-ago quarter on a reported basis and 42% on an underlying. The company witnessed a steady improvement in surgical procedure volumes during the second quarter.
  4. Critical Care sales amounted to US$215 million in the second quarter, up 31.3% from a year ago.

Analysts view on Edward Lifesciences

As a major healthcare and medical technology industry player, EW is being followed and monitored by many industry analysts.

One of the analysts monitoring the company recently said he’s upbeat about the strong uptake of EW’s products

“Strong demand for the company’s products used in high-risk surgeries and recovery elective procedures are impressive. The company has raised its full-year 2021 outlook, which is indicative of the continuation of this bullish trend,” the analyst said.

Another analyst said, “We are long Edwards Lifesciences (EW) shares as we see the company commands a premium in valuation and presents with the economic pillars to form a robust investment case. EW’s differentiated clinical outlook is reflected vertically throughout its P&L, particularly given a backdrop of strong revenue growth, and equally strong free cash flow conversion over the previous three to five years.”

One analyst said EW shares seem to be trading at a premium but considered it justified.

“We feel this premium to valuation is justified. This is because the company seems well insulated from peers in its valve offerings, and especially given the forecasted sales traction in its structured heart and critical care segments over the coming years,” the analyst said.

Technical Analysis of Edwards Lifesciences share price movement

Sharp gains in the stock price since late March have seen Edwards Lifesciences gain more than 40% in less than 5 months, with new highs seen above the US$110 level. On a linear price chart, these gains appear dramatic with substantial risk emerging for a near term pause in the upward trend.

However, longer term charts viewed on a logarithmic scale show that the upward trend has been remarkably consistent over the past 20 years. With this in mind, we would view modest near-term dips as buying opportunities with potential remaining for a further extension of the upward trend.

Conclusion

Given the strong recovery and consistent uptrend in EW share price and the recovery in elective surgery and other medical procedures that use EW products, the company looks set to continue its strong performance.

Risk Disclaimer: The information above is of general nature only and does not take into account your objectives, financial situation or investment needs. Prior to you make an investment decision, please make sure you carefully read and fully understand our Financial Services GuideTerms and ConditionsPrivacy Policy and other relevant documents that you can obtain from this website. Monex Securities Australia Pty Ltd (AFSL No. 363972; ABN 84 142 210 179) is the Financial services provider. Financial products trading carries risks and may not be suitable for all investors. You are strongly recommended to seek independent financial advice before making any investment decisions.

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