Zacks' Bear Of The Day: Edwards Lifesciences

By Kevin Cook

Edwards Lifesciences (EW), a global leader in advanced cardiovascular disease treatments, has been struggling all year, hitting a fresh 3-year low in December below $61. As the company repeatedly gives below consensus guidance due to increasing competition, analysts have taken 2014 EPS estimates down over 18% to $3.01 from $3.70 only 90 days ago.

Edwards is the number-one heart valve company in the world. They are focused specifically on technologies that treat structural heart disease and critically ill patients, with products categorized into four main areas: heart valve therapy, critical care, cardiac surgery systems, and vascular disease.

Fall From Space

While biotech stole the show in 2013, some medical technology and device makers like Medtronic (MDT) and Boston Scientific (BSX) did well too. Edwards stands out as the big disappointment in terms of revenue and earnings growth.

The Zacks proprietary Price & Consensus chart shows the share price slide, from above $100 in late 2012, following successively lower EPS revisions.

Close to a Bottom?

Analysts at William Blair "believe the stock will reach bottom around these levels since the psychological challenge for shares should ease from here, as EPS guidance of $3.00 was fully $0.50 below consensus estimates."

In other words, they see the damage as mostly done since the company's October 28 report when shares fell nearly 20% from $77 to $62 in seven trading days.

Blair analysts note that while 2014 holds negative earnings growth, their 2015 estimate of $3.44 represents 15% upside from there. They reiterated their 12-month Outperform rating, and "believe value investors should be starting positions in Edwards at current levels, with growth investors more likely to re-enter the shares after the initial phase of Medtronic's launch is behind us in mid-2014."

They are referring to competing heart technologies from MDT in the transcatheter aortic valve replacement (TAVR) market.

Bottom line: It would be nice to have confidence in buying EW at these depressed levels, but the stock is still trading over 21x next year's estimates. And if those estimates haven't bottomed yet, then neither has the stock. Until then, keep an eye on the estimates, and the Zacks Rank, for reliable evidence of a turn-aournd.

EDWARDS LIFESCI (EW): Free Stock Analysis Report (email registration required)

Source: Zacks' Bear Of The Day: Edwards Lifesciences

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