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Growth Stock At Value Price

|About: Edwards Lifesciences Corp (EW)

Edwards Lifesciences (NYSE:EW) caught my attention when the stock was beaten down to its 52 week low after missing the analyst expectations for the quarter and lowered the guidance for second half of the year. This gives a buying opportunity for investors who wish to hold the stock for next 1-2 years. As I mentioned in my previous article "Time to show optimism for stocks", growth stocks having low correlation of its sales with the economic activity and a healthy balance sheet are the best bet in a low inflation environment.

Edwards Lifesciences was spun off from Baxter International (NYSE:BAX) in early 2000 as an independent publicly-held corporation. Edward Lifesciences falls under the medical device industry and is a global leader in heart valve therapy. It is the world's leading manufacturer of tissue heart valves and repair products, which are used to replace or repair a patient's diseased or defective heart valve.

The company operates primarily on three lines of business Surgical Heart Valve Therapy, Transcatheter Heart Valves and Critical care.

- Surgical Heart Valve Therapy

The Company is the global leader in heart valve therapy and the world's leading manufacturer of tissue heart valves and repair products used to replace or repair a patient's diseased or defective heart valve. The Company produces pericardial valves from biologically inert animal tissue sewn onto proprietary wireform stents. About 41% of its sales in 2012 was derived from this business segment.

- Transcatheter Heart Valves (THV)

In this business segment, the company produces technologies designed to treat heart valve disease using catheter-based approach as opposed to open surgical technique. Edwards Lifesciences sells the SAPIEN RetroFlex 3 delivery system for transfemoral approach to treat certain inoperable patients and Ascendra delivery system for transapical approach to treat patients deemed at high risk for traditional open-heart surgery. The company also developed Edwards SAPIEN XT Transcatheter heart valve, which is delivered using the lower profile NovaFlex+ delivery system for transfemoral approach and the Ascendra+ delivery system for other approaches. SAPIEN XT is available for sale in Europe, under clinical study in US and waiting on regulatory approval in Japan. Revenue from this business represented approximately 29% of its 2012 sales.

- Critical Care

Edwards Lifesciences is a world leader in hemodynamic monitoring systems used to measure a patient's heart function in surgical and intensive care settings. These devises are utilized before, during and after open-heart, major vascular, major abdominal, neurological and orthopedic surgical procedures, as well as for acutely ill patients with conditions such as sepsis, acute respiratory distress syndrome and multi-organ failure. Sales of the Company's hemodynamic monitoring devices represented approximately 26% of the Company's net sales in 2012. EW also manufactures and sells a variety of products used to treat endolumenal occlusive disease, including balloon-tipped, catheter-based embolectomy products, surgical clips and clamps. Sales of the Company's Critical care business segment represented approximately 30% of its 2012 sales.

Outlook

Heart disease is one of the leading killer globally and with aging population in US, the cardiovascular treatment will continue to rise. The primary growth driver for Edward Lifesciences will be its THV business segment which generates higher gross profit. The company will see more sales gain once it gets the approval for SAPIEN XT in Japan. The population in emerging economies having access to better medical facilities, will help Edward Lifesciences to show moderate gains in Surgical Heart valve therapy and critical care.

The stock trades at P/E of around 26 and could rise at an industry average P/E of 32.

Financials

The company reported about $558 million of Cash and short term investment with $489.9 million held outside United States. The company has a long term debt of $192.7 million. The Current Ratio of 4.5 and Quick Ratio of 3.6, paints a solid balance sheet.

The company generated operation cash flow of $373.8 million in 2012, an improvement from $314.5 million in 2011 and $251.4 million in 2010. The company generated better gross margin for 2012 at 74% an improvement from 70.8% in 2011 and 71.8% in 2010.

Recent Developments

- EW stock was beaten down after missing analyst expectation on its sales and a lower outlook for the remainder of the year. The shares hit its 52 week low following the quarterly results.

- The CEO pledged to buy EW stocks worth $5 million and the board of directors approved a share buyback plan of $750 million which suggest the CEO and the board's confidence in the company.

Risks

One of the major risk of growth for Edward Lifesciences is a competitor like Medtronics (NYSE:MDT), St Jude (NYSE:STJ) or a new startup launching better technology or drug therapy to treat heart patients. The CoreValve system by Medtronics cheduled to be launched in 2014 (upon FDA approval), could potentially add pressure on Edward Lifesciences gross margins.

Disclosure: I am long EW. 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.

Additional disclosure: The article should not be considered a recommendation to buy or sell any stock. Individual situations can vary and a single investment advice is not suitable for all. You must consult with your financial advisor to determine the suitability of investment before making any sale or purchase.