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Why Is Edwards (EW) Up 4.1% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Edwards Lifesciences Corporation (EW - Free Report) . Shares have added about 4.1% in that time frame, underperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Edwards Lifesciences reported fourth-quarter 2016 adjusted earnings per share (EPS) of $0.75, which surpassed the Zacks Consensus Estimate by 5.6%. Adjusted earnings also improved 17.1% year over year, primarily driven by strong sales growth.

Full-year 2016 adjusted EPS came in at $2.89, up 24.5% year over year. The figure also beat the Zacks Consensus Estimate by 0.3%.

Per management, strong sales of transcatheter valves drove the bottom line.

Excluding one-time items, net income in the fourth quarter improved 12.6% or 14.1% year over year to $158.5 million or $0.73 per share, respectively.

For full-year 2016, net income improved 15.1% or 16% year over year to $569.5 million or $2.61 per share, respectively.

Sales Details

Edwards Lifesciences’ fourth-quarter sales rose 14.4% to $767.7 million. The top line also surpassed the Zacks Consensus Estimate of $759 million. Revenues were primarily driven by considerable growth in transcatheter heart valve (THV) sales as well as strong performance by the Critical Care segment.

Full-year 2016 revenues totaled $2.96 billion, which also beat the Zacks Consensus Estimate by 1.7%.

In the fourth quarter, underlying sales increased 15% (excluding the impact of foreign exchange fluctuations and the THV sales return reserve). In the U.S., sales rose 20.7% year over year to $421.5 million on an underlying basis. In the international market, underlying sales grew 8.8% to $346.2 million.

Margins

In the fourth quarter, gross margin contracted 157 basis points (bps) to 72.2% owing to reduced year-over-year benefit from foreign exchange hedge contracts and manufacturing expenses associated with capacity expansion. This was however partially offset by a profitable product mix.

SG&A expenses rose 5.1% year over year to $233.6 million on account of sales and personnel related expenses, primarily in the Transcatheter Valve (THV) segment, partially offset by the suspension of the medical device excise tax. On the other hand, R&D expenditures increased 17% year over year to $114.9 million, owing to continued investments in the company’s transcatheter mitral valve and mitral valve programs including expenditure on clinical trials. Adjusted operating margin in the quarter expanded 81 bps to 26.8% as the rise in revenues outweighed the increase in operating expenses.

Cash Position

Edwards Lifesciences exited fiscal 2016 with cash and cash equivalents and short-term investments of $1.27 billion, up from $1.22 billion at the end of 2015. Long-term debt for full-year 2016 was $822.3 million compared with $596.9 million at the end of the prior year.

Cash flow from operating activities was $201.1 million in the fourth quarter. Excluding capital spending of $63.2 million, free cash flow was $137.9 million. During the fourth quarter, management repurchased approximately 2.7 million shares for $246 million, largely to offset dilution associated with its Valtech Cardio acquisition, which closed on Jan 23.  Average diluted shares outstanding during the quarter were 218 million.

2017 Guidance

Edwards Lifesciences issued guidance for 2017. For full-year 2017, the company expects sales in the range of $3.0–$3.4 billion. The Zacks Consensus Estimate for full-year revenue is $3.22 billion, which is above the guided range. Adjusted EPS is expected at around $3.30–$3.45. The Zacks Consensus Estimate for full-year adjusted EPS is $3.38, within the company’s guided range.

For the first quarter of 2017, the company projects sales between $760 million and $800 million and adjusted earnings per share between $0.79 and $0.89. The Zacks Consensus Estimate of $0.85 is within the guided range.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Edwards Lifesciences' stock has a subpar Growth Score of 'D', however its momentum is lagging a bit with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% quintile for this investment strategy..

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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