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Edwards Lifesciences: Rallies on Strong THV Sales, View Up

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On Aug 16, we issued an updated research report on Irvine, CA-based Edwards Lifesciences Corp. (EW - Free Report) – a pioneer manufacturer of tissue heart valves and repair products. The company currently carries a Zacks Rank #2 (Buy).

Edwards Lifesciences continued with its trend of delivering better-than-expected operating results in the first half of 2016. This is evident from the strong second-quarter results that the company reported late last month, which squarely beat the Zacks Consensus Estimate.

Geographically Edwards Lifesciences excelled in both the U.S. as well as overseas, particularly in its transcatheter heart valve (THV) product segment. While in the domestic front, this segment’s growth was widespread, in the international market consistent therapy adoption was witnessed in Europe along with strong contributions from Japan.

Among the emerging nations, the company made notable progress in Japan and has recently launched its tricuspid surgical valve repair product in this country. Since then, the company has been observing strong demand for this therapy. We believe this in turn will allow Edwards to constantly deliver a solid heart valve performance in the emerging market of Japan.

With respect to pipeline development, post acquisition of CardiAQ Valve Technologies, in the early generation CardiAQ Edwards platform, Edwards is currently in the process of implementing several enhancements, including new delivery systems and utilizing Edwards' advanced tissue technology. Management plans to incorporate these improvements as part of its CE Mark trial called Relief, which will investigate both Edwards and CardiAQ’s mitral valves.

Management expects to begin treating patients under this trial soon. Early U.S. feasibility studies with both of these technologies are currently underway.We are also encouraged to note the upward revision in the company’s 2016 guidance.

On the flip side, unfavorable foreign exchange fluctuations continue to affect Edwards Lifesciences’ operations. Evidently foreign exchange headwinds impacted Edwards Lifesciences’ gross margin by 100 basis points in the second quarter.

Although Edwards Lifesciences has signed foreign exchange hedging contracts to partially mitigate the adverse impact of currency exchange, management continued to witness reduced benefits from these contracts, which in turn affects the gross margin figure. Additionally competitive headwinds and reduced reimbursement also continue to pose threats to this stock.

Key Picks in the Sector  

Some of the better-ranked stocks in the medical instrument space are IDEXX Laboratories, Inc. (IDXX - Free Report) , Masimo Corp. (MASI - Free Report) and Natus Medical Inc. . All these stocks sport a Zacks Rank #1 (Strong Buy).

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