Edwards Lifesciences Is Not Skipping A Beat

Shares of Edwards Lifesciences (EW) soared yesterday after the company reported unexpectedly strong sales in the U.S. heart-value-replacement market. I have been bullish on shares of Edwards Lifesciences for a while, but the company's uneven performance has made it very frustrating to own the stock.

Is this the report the bulls have been waiting for?

Looking at the chart of Edwards Lifesciences is enough to give anyone a heart attack. Year to date, the stock is up 17%, but over the latest 12-month period, the stock is up just 2%. Despite the rocky performance, I am still bullish on Edwards.

Edwards' stock jumped 10% on first-quarter 2017 results Tuesday. First-quarter earnings were $0.94 per share (up 32% year over year), $0.12 better than the consensus estimate. Revenue jumped 27% to $883.5 million. Analysts were forecasting sales of $776.5 million.

First-quarter revenue was higher than expected because German customers elected to purchase additional inventory of the SAPIEN 3 transcatheter heart value in anticipation of a potential supply interruption resulting from recent intellectual property litigation. Without the stocking orders, revenue would have been up 19% to $822 million.

Edwards is the leading maker of transcatheter aortic valve replacements, or TAVR, one of the fastest-growing markets in the medical device sector. About 50% of the company's business is heart value replacement, while 35% is critical care.

Like the more widely accepted coronary artery stent, the aortic heart value replacement is placed into the left ventricle of the heart through an artery. A balloon is expanded and the new value is deployed directly on top of the damaged value.

The market for TAVR is taking off, as heart surgeons begin to recognize the benefits of replacement heart values delivered by catheter. From virtually zero sales in 2008, the market climbed to over $1 billion worldwide by 2015.

First-quarter U.S. TAVR sales for Edwards were up 39% to $299 million and up 21% sequentially. The results were well ahead of analyst expectations, which should help to dispel any notion in the investor community that sales in the TAVR market are slowing. Back in October, investors freaked out over slowing sales and dumped the stock.

Last year, the PARTNER 2 trial was able to demonstrate 98% of patients experienced "freedom from death and stroke at 30 days." That was 75% better than open-heart surgery. In fact, 30 days after deploying the SAPIEN 3 aortic value, patients experienced four times lower mortality and disabling stroke compared to surgery. Over 12 months, patients had half the rate of mortality and stroke of surgery patients. Two years after TAVR, patients experienced an improved quality of life as well.

Severe inoperable aortic stenosis has a worse prognosis than many metastatic cancers. After five years, 23% of breast cancer, 30% of prostate cancer and just 12% of colorectal cancer patients are alive. While only 3% of aortic stenosis patients are alive after five years.

According to Edwards's research, there are approximately 1.6 million patients in the U.S. with moderate to severe aortic stenosis, or AS. Approximately 650,000 of those could have severe disease, and of those, as many as 290,000 are asymptomatic and could benefit from therapy. Patients with severe symptomatic aortic stenosis (ssAS) carry a poor prognosis. By 2021, the company estimates 70% of severe symptomatic, AS patients will still be left untreated.

Last month, at the American College of Cardiology (ACC) meeting, it was announced that in the SURTAVI trial TAVR "was found to be non-inferior to surgical aortic valve replacement (SAVR) for the primary composite endpoint of all-cause mortality and disabling stroke at 24 months in patients with symptomatic, severe aortic stenosis who had an intermediate level of operative risk."

Investors are expecting more TAVR data to be released at the EuroPCR Interventional Cardiovascular meeting in Paris on May 16-19.

The company guided for EPS of $0.82-0.92 and revenue between $810 million and $850 million. For the year, the company is looking for EPS of $3.43-$3.55 and revenue of $3.2 billion-$3.4 billion.

Despite the crazy performance of the stock, I believe it can go higher. In the last five years, the stock has traded from 18x to 35x forward estimates. Because of the company's superior growth prospects, I believe EW can trade to $120, or 35x the $3.40 estimates.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

If you liked this article you might like

Edwards Lifesciences: Cramer's Top Takeaways

Don't Let Stock Picking Scare You: Cramer's 'Mad Money' Recap (Wednesday 7/19/17)

Hold on Concert's Hair Loss Trials Pushes Shares Down 10%

Canaccord Says Edwards Lifesciences Is Its Favorite Med Tech Stock