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Edwards Lifesciences Corporation (EW) is scheduled to release its first quarter fiscal 2012 results on Tuesday, April 24, 2012 after the market closes.

The company is expected to earn 48 cents per share during the quarter on $450 million in revenues, according to the Zacks Consensus Estimate. The consensus estimate is lower than the year-ago quarter’s earnings of 53 cents per share. As per Edwards’ guidance (provided along with fiscal 2011 results), adjusted earnings per share (“EPS”) are expected in the range of 47−49 cents with revenues of $440−$460 million.

Previous Quarter Recap

Edwards reported an adjusted EPS of 62 cents in the fourth quarter of fiscal 2011, surpassing both the Zacks Consensus Estimate of 59 cents and the year-ago quarter’s adjusted EPS of 55 cents. For the full year, the adjusted EPS came in at $2.02, ahead of the Zacks Consensus Estimate of $1.99 and $1.84 recorded a year ago.

Revenues increased 9.6% year over year (underlying sales growth of 8.3%) to $430.2 million during the quarter, missing the Zacks Consensus Estimate of $447 million. For the fiscal year, revenues increased 16% to $1.68 billion, nominally missing the Zacks Consensus Estimate of $1.69 billion.

Heart Valve Therapy remained the strongest segment at Edwards with an underlying growth of 12.5% to $256.6 million during the quarter. Transcatheter heart valve (“THV”) sales were $93.2 million, up 42.7% year over year with U.S. sales (including both clinical and commercial) of $17.1 million. Surgical heart valve sales increased 1.6% to $163.4 million. The other segments of the company, namely Critical Care, Cardiac Surgery Systems and Vascular recorded sales of $133.3 million (underlying growth of 4.5%), $27.2 million (up 8%) and $13.1 million (down 3.2%), respectively.

Agreement of Analysts

Estimate revisions among the analysts for the first quarter have trended on the negative. Out of 19 analysts covering the stock, 2 have lowered their estimates over the last 30 days with one downward revision in the past week. The negative scenario persists for the current fiscal with six analysts out of 20 analysts lowering their estimates in the last 30 days. None of the analysts has raised their estimates.

Apart from the uncertain reimbursement scenario for Edwards’ Sapien THV, we believe the cautious stand adopted by the analysts is due to the uninspiring U.S. sales of the device. Moreover, the uncertain economy in Europe affected procedure volumes and Sapien sales in its turn. The situation in Europe has become more competitive with the recent launch of valves by JenaValve Technology and Symetis.

Current investor focus is on the outcome of the Advisory Panel of the U.S. Food and Drug Administration (“FDA”), which will review Sapien in high risk patients on June 13, 2012. This is crucial as the company’s THV sales guidance assumes approval for the high-risk patient population by June 2012. In March 2012, Edwards had presented positive long-term data from Cohort A of the PARTNER trial at a conference in Chicago. The study evaluated patients at high risk of surgery who were either treated with surgical aortic valve replacement or with Sapien THV.

Magnitude of Estimate Revisions

Despite a few downward revisions from the analyst community over the past 7 and 30-day periods, the consensus estimate for the current quarter has remained static at 48 cents over the last 30 days. However, subsequent to the release of fiscal 2011 results, estimates have dropped from 55 cents. For the current fiscal, the consensus estimate has come down by 5 cents to $2.66 over the past month.

Surprise

During the last fiscal year, Edwards exceeded estimates in two quarters with a positive four-quarter average of 6.68%. This indicates that, on an average, the company has exceeded the Zacks Consensus Estimate by this magnitude over the last four quarters.

Our Recommendation

The development of the Sapien portfolio holds immense potential for Edwards as it provides surgeons the option to eliminate the necessity of open heart procedures. While the company has the first mover advantage in the U.S. with its launch of Sapien in November 2011, the scenario in Europe is competitive with the presence of Medtronic (MDT) and other players. Besides, economic uncertainty in Europe adversely affected Edwards’ THV sales during fourth-quarter 2011. We also remain concerned about sales of Sapien in the U.S. due to uncertainty related to reimbursement. If the uptake of Sapien in the U.S. falls short of estimates, the company might have to lower its THV sales guidance for the year.

We have a Neutral recommendation for Edwards. The stock retains a Zacks #3 Rank (Hold) in the short term.

Source: Edwards Lifesciences: Earnings Preview