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Edwards Lifesciences Corporation (NYSE:EW) is scheduled to release its third quarter fiscal 2011 results on Wednesday, October 19, 2011 after the market closes.

The company is expected to earn 39 cents per share during the quarter on $405 million in revenues, according to the Zacks Consensus Estimate. The consensus estimate is lower that the year-ago quarter’s EPS of 43 cents. As per Edwards’ guidance (provided along with the second quarter results), adjusted EPS is expected in the range of 37−39 cents.

Previous Quarter Highlights

Edwards reported an adjusted EPS of 49 cents in the second quarter of fiscal 2011, a penny below the Zacks Consensus Estimate, although exceeding the year-ago quarter’s adjusted EPS of 46 cents. Revenues increased 18.1% to $431.2 million, also ahead of the Zacks Consensus Estimate of $424 million.

Heart Valve Therapy remained the strongest segment at Edwards with an annualized growth of 22.5% to reach $263.1 million. Sales of surgical heart valves grew 10% to $177.8 million and transcatheter heart valves (THV) recorded a 60.3% growth to book $85.3 million. The other segments of the company, namely Critical Care, Cardiac Surgery Systems and Vascular recorded sales of $127.7 million (annualized growth of 15.6%), $27.3 million (up 3%) and $13.1 million (down 2.2%), respectively.

Agreement of Analysts

No significant revisions in estimates have taken place over the last 7 or 30 days. During last week, only one analyst increased his/his estimate with none moving in the opposite direction. Besides, over the past month, estimates have changed in both directions by one analyst.

Analysts have adopted a cautious stand on the company based on certain recent developments. Last month, Edwards received a major setback as the Centers for Medicare & Medicaid Services (NYSE:CMS) decided to initiate a National Coverage Analysis (NYSE:NCA) of transcatheter aortic valve replacement (TAVR). According to the agency, it received a formal national coverage determination (NCD) request from the Society of Thoracic Surgeons (NYSEMKT:STS) and the American College of Cardiology (NYSE:ACC).

Current investor focus is on the potential US approval of Sapien THV for Cohort B patients (considered unfit for surgery). Edwards is confident of receiving approval by October 2011 and expects to record approximately $20–$25 million during the first quarter of Sapien’s launch in the US. However, any unfavorable reimbursement decision from CMS could have an adverse impact on the potential market of the valve.

In July 2011, Sapien received favorable recommendation from the advisory panel of the US Food and Drug Administration (FDA). However, the panel expressed concerns about vulnerability to neurological problems, particularly stroke, in patients treated with Sapien. We await an update from the company regarding the potential approval of Sapien in the US.

Additionally, Edwards is looking at strengthening its Critical Care segment and several developmental programs are currently underway in this regard.At the end of the last quarter, the company was almost done with its in-hospital glucose monitoring program, a second generation product. We await the developments regarding its current regulatory status in both US and Europe.

Magnitude of Estimate Revisions

Given nominal estimate revisions from the analyst community over the past 7 and 30-day periods, the consensus estimate for the current quarter has remained static at 39 cents over the last 60 days. However, subsequent to release of second quarter results, estimates have dropped from 44 cents.


Barring the second quarter of fiscal 2011, Edwards has consistently exceeded estimates with a positive four-quarter average of 7.59%. This indicates that, on an average, the company has exceeded the Zacks Consensus Estimate by this magnitude over the last four quarters.

Our Recommendation

Based on a strong cash balance, the company targets suitable acquisitions to strengthen its portfolio apart from repurchasing shares. However, in Europe, Edwards operates in a highly competitive environment with the strong presence of Medtronic (NYSE:MDT). Moreover, Boston Scientific (NYSE:BSX) is also working to enter the THV market banking on the acquisition of Sadra Medical.

We currently have a Neutral recommendation on Edwards, which corresponds to a Zacks #3 Rank (Hold) in the short term. However, any adverse decision regarding Sapien would lead us to revise our estimates for the forthcoming period. Both Medtronic and Boston Scientific carry Neutral recommendations.