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Edwards Lifesciences (EW - Free Report) , the $24 billion global leader in structural heart disease innovations, is still a Zacks #1 Rank Strong Buy after reporting strong Q2 results and improved guidance for Q3 that prompted analysts to raise EPS estimates.

The solid jump in estimates for this year and next is what has kept EW a Zacks #1 for over 7 weeks.

Edwards Lifesciences’ second-quarter sales grew 10.9% to $841.8 million, beating the consensus. Underlying sales increased 15.3%, including the impact of German customers stocking shelves for additional inventory of the SAPIEN 3 valve in anticipation of a potential supply interruption resulting from recent intellectual property litigation.

Revenues were driven by considerable growth in the company's primary solution, the transcatheter aortic valve replacement (TAVR) device, which, as the name implies, is a specialized collapsible valve that can be inserted into a patients heart via a catheter, thus eliminating the need for major invasive surgery.

This innovation is especially welcome for older or at-risk heart patients whose doctors are concerned about the dangers of surgery.

In 2011, the FDA approved the Sapien valve invented by Edwards as the first approved transcatheter aortic valve prosthesis.

By the end of 2015, nearly 55,000 procedures had been performed.

Hydraulic Pump Engineer Creates First Successful Heart Valve

Edwards Lifesciences’ roots date to 1958, when Miles “Lowell” Edwards set out to build the first artificial heart.

Edwards was a 60-year-old, recently retired engineer holding 63 patents in an array of industries, with an entrepreneurial spirit and a dream of helping patients with heart disease. His fascination with healing the heart was sparked in his teens, when he suffered two bouts of rheumatic fever, which can scar heart valves and eventually cause the heart to fail.

With a background in hydraulics and fuel pump operations, Edwards believed the human heart could be mechanized. He presented the concept to Dr. Albert Starr, a young surgeon at the University of Oregon Medical School, who thought the idea was too complex. Instead, Starr encouraged Edwards to focus first on developing an artificial heart valve, for which there was an immediate need.

After just two years, the first Starr-Edwards mitral valve was designed, developed, tested, and successfully placed in a patient. Newspapers around the world reported on what they termed a “miraculous” heart surgery.

This innovation spawned a company, Edwards Laboratories, which set up shop in Santa Ana, California – not far from where Edwards Lifesciences’ corporate headquarters is located today.

It also spawned decades more of further innovation in heart valve replacement technology, with the non-surgical catheter procedures being the most remarkable, as they give new hope to older or other at-risk patients who may not be able to withstand surgery.

Second Quarter Highlights

Edwards reported its Q2 results in late July and these were some of the noteworthy metrics...

>Global Transcatheter Heart Valve Therapy (THVT) sales grew 16 percent to $488 million
>U.S. THVT sales grew 28 percent to $316 million
>2017 adjusted EPS guidance increased to $3.65 to $3.85, from $3.43 to $3.55
>Recent FDA approvals of SAPIEN 3 valve-in-valve, INSPIRIS RESILIA and HemoSphere

Growth was driven by excellent clinical performance results being delivered by SAPIEN 3 as well continued strong therapy implementation across all regions.

Surgical Heart Valve Therapy (SHVT) sales in the quarter were $207.1 million, up 4.2% from the prior-year quarter. This was led by strong demand for the EDWARDS INTUITY Elite valve system and the supply recovery in mitral valve sales, partially offset by the continuing shift from surgical aortic valves to the SAPIEN 3 valve.

Edwards' smallest segment also saw growth. Critical Care sales were $147.2 million in the reported quarter, representing an increase of 3.7% from second-quarter 2016.  Solid growth across all product categories was driven by double-digit growth in the company's Enhanced Surgical Recovery Program, mainly in the U.S and Asia Pacific.

Edwards chairman and CEO Michael A. Mussallem was quoted in the company press release, "Strong demand for TAVR therapy resulted in total sales growth of 15 percent on an underlying basis, which also reflected strength in all three of our product lines across all regions.  And our transcatheter mitral and tricuspid valve technologies continue to represent exciting opportunities for breakthrough therapies for patients in need."

Analysts Raise Estimates and Price Targets

Since the company report, analysts have boosted the full-year 2017 EPS estimate to $3.78 from $3.52.

And the 2018 profit projection moved up to $4.17 from $3.97, representing 10% growth and matching the annual revenue growth rate as sales are expected to climb to $3.74 billion from this year's $3.4 billion.

Goldman Sachs was a standout bull on EW, placing the company on their coveted Conviction Buy List and raising their price target to $138 after strong Q1 results. Luckily for my Healthcare Innovators service, I bought the stock below $100 the morning before they reported for Q1 on April 25.

After the Q2 report, Goldman no longer owns the Street high target. SunTrust analysts bumped their PT to $146 and BofA/ML analysts jumped to $150. And Canaccord Genuity analyst Jason Mills raised his price target on Edwards to $155 from $150.

One investment bank that sounded more neutral was Leerink Swann. They only raised their PT to $120 from $110 citing a slower ramp in sales to the "intermediate risk" population, the market for heart valve replacement patients who are not high risk.

This is a new and expanded market opportunity that has been approved by the FDA and EW is moving into. But Leerink analysts think the ramp will be slow.

The analysts apply a 30X P/E multiple to their $3.95 2018 EPS estimate. The analysts believe that upside to shares will be limited, as "beat and raise" quarters "will be more difficult to come by in light of a potentially slower-than-initially expected intermediate risk ramp and increasing competition."

So they believe the stock is fairly valued now given near-term growth, but at the same time say "We continue to believe the ultimate market opportunity is massive and EW will retain its market-leading position." I'll take that long-term view.

In late August, William Blair analyst Margaret Kaczor resumed coverage of Edwards Lifesciences citing that the company is poised for double digit growth on the top line over the coming three to five year period, even in the face of competitive pressures.

Kaczor commented "We expect growth to be driven by market expansion of its transcatheter aortic valve replacement (TAVR) technology into younger patients and by new product launches. By 2021, we believe the global TAVR market will exceed $5 billion from $2.6 billion in 2016."

And finally, on September 8, Wells Fargo analysts put out a report detailing their recent investor meeting with EW management. After talking with CEO Mike Mussallem and David Erickson from IR, the analysts thought management sounded positive on underlying trends in the business and the pipeline, and they left with increased conviction that EW will be able to deliver against the implied second-half 2017 guidance of +13-14% underlying growth.

EW remains on the Wells Fargo Priority Stock List -- 1 of only 15 names -- with a price target of $130.

Bottom line: Edwards Lifesciences is a solid long-term buy and hold -- especially if you get to buy it near $110.

Disclosure: I own EW shares for the Zacks Healthcare Innovators portfolio.

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