Edwards Lifesciences: A Med-Tech Stock Staying Strong For A Reason

Summary

• While much of the healthcare sector is stumbling or even crumbling, Edwards is sailing along, up 29% yoy.
• Edwards reported strong results for its SAPIEN 3 aortic valve transcatheter therapy in March.
• Edwards also has a potentially very large greenfield opportunity in mitral and tricuspid valve transcatheter therapies.
• The secular opportunities and the company's leadership positions in transcatheter treatments may make the high P/E Edwards carries more than fair to investors.
• Edwards has come down from its high, and I have taken a starter position in this name.

Introduction

Edwards Lifesciences (NYSE:EW) describes itself this way:

... we continue to lead the field of tissue replacement heart valves and repair products and advanced hemodynamic monitoring, which have helped treat and manage more than 2 million patients worldwide.

EW was spun off by Baxter (BAX) 19 years ago with a lot of debt and uncertain prospects. As this chart compares EW with two major competitors and the S&P 500 (SPY), it has been discovered:

EW trades with about 2X the prices:sales ratio of Boston Scientific (BSX) and about 2.5X that of giant Medtronic (MDT). BSX and MDT are more broadly diversified than EW beyond cardiovascular ("CV") medicine. EW makes a point of saying that it wants to stay relatively non-diversified. The company's collaborations with now-famous doctor-researchers, such as Drs. Starr, Fogarty and Carpentier, have represented a "win-win-win" situation for the company, the co-inventors, and society at large. (See 2018 Annual Report for more background and photos.)

At $178, EW trades near 34X non-GAAP consensus EPS for 2019, thus putting it at close to a relative P/E of 2X the non-GAAP P/E for the SPY. Is this attractive? Can this niche field really allow enough predictable multi-year above-trend growth to justify this very high premium?

Let's look deeper.

A brief overview of operations

While EW operates in about 100 countries, 55% of revenues come from the US, with the great majority of the rest from the familiar EU/Japan axis. (See p. 24 of the 10-K for this and other statistics.) The rest of the world offers tantalizing growth prospects, both because of the many untreated degenerative valve diseases of aging, but because of the much greater prevalence there of rheumatic heart (valve) disease.

Sticking with developed countries, the bullish story about EW relates heavily to its growth opportunities with catheter-based treatment

Analyst’s Disclosure:I am/we are long EW, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Not investment advice. I am not an investment adviser.