Edwards Lifesciences to Report on Lowered Outlook

NEW YORK (TheStreet) -- This has been a busy week of earnings reports as many large cap companies crowd the headlines and anxious shareholders react to news from the earnings confessional.

Some of these reports, as well as the political circus in the U.S. and even the baseball championships have left many shareholders, voters and sports fans feeling the pounding of that most important of all pumps, our incredible hearts.

With the ongoing process of aging comes new medical issues and coronary challenges. Here in the U.S., more than 1,000 "baby boomers" turn 65 each day. The oldest of that large demographic group (estimated at around 75 million people) will soon be turning 67 in 2013.

The breakthroughs in cardiac technologies and the science of keeping the heart pumping reliably are becoming more important with each passing year.

One of the companies focusing on this critically important area of health care for almost 13 years is Edwards Lifesciences ( EW) which reports earnings Friday.

Irvine, Calif.-based Edwards Lifesciences provides products and technologies used to treat advanced cardiovascular diseases. Edwards' expertise involves providing many of the vital parts that are used during cardiac surgery procedures. They appear to be one of the most successful "specialists" in creating minimally invasive surgery products.

Beyond that EW manufactures and sells various other vascular devices consisting of balloon-tipped, catheter-based embolectomy products, plus surgical clips and clamps. When it comes to the medical products needed for the repair of the human heart EW appears to provide them or is working on providing them.

You can learn about EW's specialties at their educational web site. You're sure to come away learning not only about this company but of many medical advances that have been made in the science of keeping our "tickers ticking."

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust -- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

As EW prepares to report third-quarter results, it's important to remember that the company has guided lower in the weeks preceding. Analysts lowered their consensus estimate of earnings per share from 60 cents to around 56 cents. That would still represent a 47% increase over the year-ago quarter when the company reported earnings of 38 cents per share.

EW shares have had a 52-week range from a low of $61.59 to as high as $110.79. It closed Wednesday at $87.80. This price translates to a trailing price to earnings ratio of 42 and a forward (1-year) P/E of 27. Their market cap is $10.16 billion.

Compared to larger competitors like Medtronic ( MDT)whose P/E (trailing and forward) are only 12 and 11, Edwards Lifesciences would appear to be richly priced.

As Jim Cramer often says, one of the most important financial numbers is a company's operating cash flow, which in the case of EW has been more than $331 million in the trailing 12 months period. Its levered free cash flow stood at more than $142 million (trailing 12 months) as of the end of the second quarter.

If operating cash flow and total cash is to improve to support such a rich price multiple, it would seem to be imperative that they have a blow-out quarter when it comes to revenue growth. Revenue is projected to improve beyond the comparable quarter from last year. For the year, revenue is projected to increase from last quarter's $1.78 billion to $1.91 billion, which would be a 7.3% improvement.

The 5-year chart below traces the history of EW's share price and its trailing 12 months revenue per share growth. There is a powerfully obvious correlation, so if the price is to be sustained or increased so must the revenue.

EW Chart EW data by YCharts

View the 22 analysts' EW estimates and projections and judge for yourself.

My sense is that EW may exceed expectations enough to maintain the current share price level. If they disappoint don't be surprised by a rather steep sell-off, which would set the stage for a more reasonable entry price level and P/E.

With their 5-year expected price to earnings to growth ratio of 1.68, a further correction in the shares of Edwards Lifesciences from current levels would not be unwarranted.

Remember the old investor's adage, "don't chase a stock, but let it come to you," and expect your patience to eventually be rewarded. Just like coronary surgeons do when they use the very best procedures and products.

At the time of publication the author held no positions in any of the stocks mentioned.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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