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Edwards Lifesciences (EW) Down 3.3% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Edwards Lifesciences Corporation (EW - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the market.

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

Recent Earnings

Edwards Lifesciences reported second-quarter 2017 adjusted earnings per share (EPS) of $1.08, which surpassed the Zacks Consensus Estimate of $0.88 by a wide margin of 22.7%. Adjusted earnings also improved a stupendous 42.1% year over year, primarily driven by strong sales growth at the company’s transcatheter heart valves business.

Excluding one-time items, net income in the second quarter came in at $186.1 million or $0.86 per share, up 46.9% or 48.3% year over year, respectively.

Sales Details

Edwards Lifesciences’ second-quarter sales improved 10.9% to $841.8 million. The figure also beat the Zacks Consensus Estimate by 0.69%. Underlying sales increased 15.3% (including the impact of Germany stocking sales as customers in Germany elected to purchase additional inventory of the SAPIEN 3 valve in anticipation of a potential supply interruption resulting from recent intellectual property litigation).
Revenues were primarily driven by considerable growth in transcatheter heart valve sales as well as strong performance by the other two product lines across all regions.
    
Segments Details

For the second quarter, the company reported Transcatheter Heart Valve Therapy (THVT) sales of $487.5 million, reflecting 16.5% growth over the prior-year quarter. In the U.S., THVT sales in the quarter were $316.3 million, up 28.4% year over year. 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 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.

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.
Margins

In the second quarter, gross margin expanded 160 basis points (bps) to 74.9% owing to a more profitable product mix, led by growing sales of transcatheter valves. This was however partially offset by adverse foreign exchange.

SG&A expenses rose 6.6% year over year to $243.8 million on account of sales and personnel related expenses, primarily in the Transcatheter Valve (THV) segment. On the other hand, R&D expenditures increased 19.5% year over year to $134.4 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 160 bps to 29.9% as the rise in revenues outweighed the increase in operating expenses.

Cash Position

Edwards Lifesciences exited the second quarter with cash and cash equivalents and short-term investments of $1.13 billion, compared with $918.9 million at the end of the first quarter. Long-term debt in the quarter totaled $1.02 billion, compared with $847.9 million reported previously.

Cash flow from operating activities was $197.7 million in the second quarter, compared with $128.3 million in the previous quarter. Excluding capital spending of $58.0 million, free cash flow was $139.7 million. During the quarter, management repurchased 0.8 million shares for $73.8 million to offset dilution associated with its Valtech Cardio acquisition and stock-based incentive compensation.
 
Updated 2017 Guidance

Banking on a solid second-quarter performance, Edwards Lifesciences has raised its full-year 2017 sales expectations to the high end of the previously projected range of $3.2–$3.4 billion. The Zacks Consensus Estimate for full-year revenue is $3.35 billion, near the high end of the guided range. Adjusted EPS expectations have also been raised to $3.65–$3.85 from $3.43–$3.55. The Zacks Consensus Estimate for full-year adjusted EPS stands at $3.52, within the company’s guided range.

For the third quarter of 2017, the company projects sales (after adjusting for the effect of Germany stocking sales) between $810 million and $850 million. The Zacks Consensus Estimate for revenues is $816.1 million, within the projected range. The company estimates adjusted EPS between $0.80 and $0.90. Meanwhile, the Zacks Consensus Estimate for adjusted EPS is $0.83, which is also within the company‘s forecasted range.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.

VGM Scores

At this time, Edwards Lifesciences' stock has a subpar Growth Score of D, however its Momentum is doing a bit better with an C. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

The company's stock is suitable solely for momentum based on our styles scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. The stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.




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