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Edwards Lifesciences (EW) Q2 Earnings: Will It Be a Miss?

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Edwards Lifesciences Corp. (EW - Free Report) is scheduled to report its second-quarter 2016 earnings on Jul 26, after the closing bell.

Last quarter, the company posted a positive earnings surprise of 7.58%. Encouragingly, Edwards’ earnings outpaced the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 8.06%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

For the second quarter of 2016, Edwards expects total sales of $700-$740 million and adjusted earnings per share (EPS) in the range of 67–73 cents. The current Zacks Consensus Estimate for revenues and EPS are $722 million and 70 cents, respectively, which is within the company’s guided range.

EDWARDS LIFESCI Price and EPS Surprise

EDWARDS LIFESCI Price and EPS Surprise | EDWARDS LIFESCI Quote

 

For the entirety of second quarter, Edwards remained in the MedTech headlines, owing to the release of a handful of significant study results in favor of its transcatheter heart valves (THVs).

The company opened its account in early-Apr 2016, with the successive release of two sets of data from the Partner II clinical trial. These data which demonstrated the superiority of Edwards’ Sapien XT and Sapien 3 valves over open heart surgery in treating severe, symptomatic aortic stenosis (AS) patients, who were at intermediate risk for surgery.

In the next month, Edwards revealed positive data from the Source 3 Registry of its Sapien 3 THV, at the EuroPCR 2016. The trial outcome exhibited the highest ever reported survival rate and a low stroke rate for AS patients enrolled in the Source family of registries.

We believe that the outcome from the aforementioned study results emphasize the advantages of Edwards’ Sapien family of valves for patients suffering from severe symptomatic AS. This, in turn, should lead to greater adoption of these valves, which will boost Edwards’ THV business segment sales. We expect this to get reflected in the yet-to-be released second quarter results.

In the very same month, a federal jury returned a verdict in favor of Edwards’ CardiAQ mitral valve platform, in a lawsuit filed against a former service provider, Neovasc. The jury also awarded damages of $70 million to Edwards for trade secret misappropriation, which is expected to get reflected in the company’s second-quarter’s operating results.

On the flip side, as per management’s estimate Edwards grew at a slower rate compared to its peers in the recent past, owing to market share decrease as competitors continue to expand their product offerings. With other major players effectively competing to capture larger shares in the MedTech industry space, this remains a major issue of concern for Edwards’ investors.

Moreover, significant reimbursement cuts have been taking a toll on the operating results of medical device manufacturers like Edwards, as is apparent from the company’s rising operating expenses in recent times.

Earnings Whispers

Our proven model does not conclusively show that Edwards is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP:  Edwards has a negative earnings ESP of -1.43%.That is because the Most Accurate estimate is pegged at 69 cents while the the Zacks Consensus Estimate is pegged lower at 70 cents.

Zacks Rank: Edwards has a Zacks Rank #4 (Sell), which along with a negative ESP of -1.43% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the upcoming quarter:  

Bristol-Myers Squibb Company (BMY - Free Report) , with an Earnings ESP of +3.03% and a Zacks Rank #1.

Allergan plc (AGN - Free Report) , with an Earnings ESP of +0.90% and a Zacks Rank #2.

Laboratory Corp. of America Holdings (LH - Free Report) , with an Earnings ESP of +0.87% and a Zacks Rank #2.

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