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Edwards Lifesciences: Q1 Strong, TAVR Prospects Bright

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On May 25, 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 made a strong start to 2016, with its first-quarter results beating estimates on both the fronts. Moreover, the upward revision in both EPS and sales expectations for full-year 2016 raises optimism.

We believe that the substantial untapped demand in emerging markets is likely to act as a catalyst for Edwards Lifesciences. This is reflected in the strong 16% underlying sales growth achieved at constant exchange rate or CER in Rest of the World and 11% in Japan during the first quarter.

Notably, the company’s Sapien 3 valve won marketing approval in the first quarter in Japan, while management is currently in the process of training sites on this best-in-class valve and preparing for its rollout, which is slated to begin in May 2016. This will undoubtedly expand Edwards Lifesciences’ TAVR market share in the nation.

With respect to pipeline development, Edwards Lifesciences aims at using this intermediate risk data, involving its Sapien XT and Sapien 3 valves, to expand the CE Mark indication for these products. The company will submit these data to European regulators soon, with expectations for approval of an expanded label in late 2016 or by early 2017.

On the flip side, unfavorable foreign exchange fluctuations continue to affect Edwards Lifesciences’ operations. Evidently, in the first quarter, foreign exchange headwinds impacted Edwards Lifesciences’ sales by $9 million, apart from hurting its gross margin.

Although Edwards Lifesciences has signed foreign exchange hedging contracts to partly mitigate the adverse impact of currency exchange, management expects reduced benefits from these contracts going ahead. Competitive headwinds and reduced reimbursement also continue to pose threats to this stock.

 Key Picks in the Sector                

Other favorably ranked medical stocks are SurModics, Inc. (SRDX - Free Report) , Baxter International Inc. (BAX - Free Report) and Boston Scientific Corporation (BSX - Free Report) . While SurModics and Baxter sport a Zacks Rank #1 (Strong Buy), Boston Scientific carries a Zacks Rank #2.

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