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Edwards Lifesciences (EW) Up 5.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Edwards Lifesciences (EW - Free Report) . Shares have added about 5.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Edwards Lifesciences due for a pullback? 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 drivers.

Edwards Lifesciences Revenue Rises on Solid THVT Unit in Q3

Edwards Lifesciences third-quarter 2018 adjusted earnings per share (EPS) came in at $1.07. Reported EPS was $1.06.

Adjusted EPS beat the Zacks Consensus Estimate of $1.02 by 4.9%. Moreover, adjusted earnings improved 27.4% year over year, primarily driven by strong sales growth at the transcatheter heart valves business and strength in the Critical Care segment.

Sales Details

Third-quarter sales improved 10.4% to $906.6 million but fell short of the Zacks Consensus Estimate of $925 million by 2%. Underlying sales increased 10.8% (including the impact of Germany stocking sales as customers in the nation chose 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 Critical Care product line.

Segmental Details

In the third quarter, the company reported Transcatheter Heart Valve Therapy (THVT) sales of $557.8 million, reflecting 15.9% growth over the prior-year quarter. Globally, sales grew at a lower rate due to a modest year-over-year share decline internationally and lower royalty revenues. Notably, the projected worldwide TAVR procedures growth remained in the mid-teens. Edwards Lifesciences average selling price remained stable globally.

Surgical Heart Valve Therapy sales in the quarter totaled $184.6 million, down 5.6% from the prior-year quarter. Edwards Lifesciences continued to see solid uptake of its new premium aortic valves along with solid aortic unit volume. Further, the company recently initiated the launch of its INSPIRIS RESILIA aortic valve in Japan.

Critical Care sales totaled $164.2 million in the reported quarter, representing an increase of 13.5% from third-quarter 2017. The upside can be attributed to solid growth across all product categories, largely led by HemoSphere advanced monitoring platform supported by new group purchasing organization contracts in the United States.

Margins

In the third quarter, gross margin expanded 120 basis points (bps) to 75.2% owing to a more profitable product mix and absence of previous year’s Hurricane Maria-related expenses. However, this was partially offset by continued capacity-related expenses.

SG&A expenses rose 10.2% year over year to $269.5 million on account of sales and personnel-related expenses. R&D expenditures increased 13.25% year over year to $161.8 million owing to continued investments in the transcatheter aortic valve and mitral valve program along with expenditures on clinical trials. Accordingly, adjusted operating margin in the quarter expanded 70 bps to 27.6%.

Cash Position

Edwards Lifesciences exited the third quarter with cash and cash equivalents and short-term investments of $1.60 billion compared with $1.40 billion at the end of the second quarter of 2018. Long-term debt in the reported quarter totaled $593.6 million versus $438.4 million at the end of the preceding quarter.

Cash flow from operating activities was $342 million in the third quarter. Excluding capital spending of $85 million, free cash flow was $257 million. During the quarter, average diluted shares outstanding totaled 213.2 million.

2018 Guidance Intact

Edwards Lifesciences reiterated its 2018 adjusted EPS expectations in the $4.60-$4.75 range. The Zacks Consensus Estimate for full-year adjusted EPS was $4.67, within the company’s guided range.

However, the company continues to maintain sales expectations at the high end of the projected range of $3.5-$3.9 billion. The Zacks Consensus Estimate for full-year revenues is pinned at $3.82 billion, within the guided range.

For the fourth quarter of 2018, the company projects sales between $950 million and $1 billion. The Zacks Consensus Estimate for revenues is pegged at $997.5 million, within the company’s estimated range. The company forecasts adjusted EPS between $1.05 and $1.20. Meanwhile, the Zacks Consensus Estimate for adjusted EPS is at $1.21, which is above the company‘s projected range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Edwards Lifesciences has a nice Growth Score of B, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Edwards Lifesciences has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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