On Monday, Wolfe Research adjusted its stance on Edwards Lifesciences (NYSE:EW) stock, elevating the stock's rating from Underperform to Peerperform. The firm cited a conservative view on the long-term growth potential for the Transcatheter Aortic Valve Replacement (TAVR) market and enterprise EBIT margins, contrasting with more optimistic industry consensus.
The analyst at Wolfe Research expressed a cautious outlook on the company's revenue growth and margin expansion. While the broader market expects Edwards Lifesciences to sustain around 10% revenue growth, Wolfe Research suggests that there is an elevated risk of a deceleration, anticipating that U.S. TAVR growth could slow to a high single-digit percentage in the short term and a mid-single-digit percentage over the medium term.
The firm also addressed the issue of margins, acknowledging that while the prevailing view on margin modeling appears reasonable, it may not fully account for potential offsets in research and development (R&D) leverage in the gross margin or sales and marketing expenses.
Wolfe Research anticipates that any improvements in R&D leverage are likely to be counterbalanced by a modest decline in gross margins or an increase in the sales, general, and administrative (SG&A) expense ratio, which would be necessary to support growth initiatives in TAVR and Transcatheter Mitral and Tricuspid Therapies (TMTT).
Edwards Lifesciences, a prominent player in the medical device sector, specializes in products for structural heart disease, as well as critical care and surgical monitoring. The company's performance and prospects in the TAVR market are of particular interest to investors, as it represents a significant segment of its business operations.
In other recent news, Edwards Lifesciences has had a flurry of activity following its latest financial results. The company reported a $95 million revenue beat, with total sales reaching $1.63 billion, but its core global Transcatheter Aortic Valve Replacement (TAVR) segment underperformed expectations, leading to a lowered full-year TAVR growth guidance to 5-7%. This development prompted Mizuho to maintain its Outperform rating but reduce the price target for Edwards Lifesciences.
Several other firms, including BofA Securities, Oppenheimer, and TD Cowen, also adjusted their outlooks on the company, primarily due to the slowdown in the TAVR market. TD Cowen downgraded Edwards Lifesciences from Buy to Hold and reduced its price target, citing anticipated high single-digit revenue growth for the company in 2024 and 2025.
In addition, Edwards Lifesciences announced the acquisition of JenaValve Technology and Endotronix, totaling an investment of $1.2 billion. Despite the challenges in the TAVR market, the company projects a full-year 2024 surgical sales growth of 6% to 8%, driven by the adoption of the RESILIA portfolio. These recent developments reflect the company's ongoing efforts to navigate the complex healthcare landscape while focusing on innovation and market expansion.
InvestingPro Insights
In light of Wolfe Research's new rating for Edwards Lifesciences, current InvestingPro data and tips provide additional context for investors. The company's management has been actively repurchasing shares, which could be a signal of confidence in the company's valuation (InvestingPro Tip). Additionally, with the stock trading near its 52-week low and the RSI suggesting it is in oversold territory, some investors might see this as a potential buying opportunity (InvestingPro Tip).
From a financial standpoint, Edwards Lifesciences has a market cap of $37.58 billion and is trading at a P/E ratio of 25.19, which adjusts to 21.44 when looking at the last twelve months as of Q2 2024. This valuation comes as the company has seen a revenue growth of 9.67% during the same period, indicating a strong performance in sales (InvestingPro Data). However, investors should note that the stock has experienced significant price declines over the past week, month, and year, reflecting the cautious sentiment expressed by Wolfe Research.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available that can further inform their investment decisions. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription for access to these insights.
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