Under the Radar: A Life-Sciences Leader

Edwards Lifesciences' heart valves and the company's stock are built for the long term.
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) -- Heart disease is the leading cause of death in the U.S., U.K. and Canada. So our aging baby boomer population needs to improve its cardiovascular health. Here's a mid-cap health-care-equipment specialist that stands to benefit.

Irvine, Calif.-based

Edwards Lifesciences

(EW) - Get Report

began in 1958 when founder Miles "Lowell" Edwards decided he wanted to build the world's first artificial heart. Edwards was a career engineer with experience in hydraulics and fuel-pump operations and was up to the task of replication.

But when he met Dr. Albert Starr, Edwards tempered his ambition. The two decided to narrow their focus and attempt construction of an artificial valve. Just two years after their initial collaboration, the Starr-Edwards mitral valve was successfully implemented in a live patient. Edwards Laboratories was founded soon after in Santa Ana, Calif.

Today, the company has an array of devices designed to assist the human heart during normal activity and to aid surgeons performing complex operations. Edwards' focus has made it a leader in cardio devices. About 85% of the company's annual revenue is derived from brands with market-leading positions.

Edwards' second-quarter revenue inched up 2% to $335 million, but net income increased 20% to $48 million and earnings per share climbed 21% to 81 cents, helped by a lower share count. The operating margin improved from 16% to 19% and the net margin jumped from 12% to 14%. Although Edwards' net margin is weaker than large-cap peers such as


(BAX) - Get Report



(BDX) - Get Report

, its stock receives a superior volatility score.

The company's balance sheet holds $188 million of cash reserves and just $113 million of debt. A quick ratio of 1.9 and a debt-to-equity ratio of 0.1 indicate fiscal prudence. We give Edwards an overall financial-strength score of 7.9 out of 10, which is higher than our "buy"-rated average.

Shares of Edwards Lifesciences have risen 22% in 2009, outperforming the

Dow Jones Industrial Average

and the

S&P 500

. As a result of the strong performance, the stock is trading at a premium, which is evident in its price-to-earnings ratio of 22. Edwards doesn't pay dividends and has a beta, a measure of market correlation, of 0.5.

We expect the company to capitalize on the aging baby-boomer population and continue its strong performance into 2010.

-- Reported by Jake Lynch in Boston. Feedback can be sent to jake.lynch@thestreet.com.