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Stock Analysis & Ideas

Edwards Lifesciences: Solid Business, Room to Improve

A COVID-19 infection can cause permanent problems in the structures of the heart muscle, and endanger the health of other systems.

Edwards Lifesciences Corporation (EW), a global leader in heart valve replacement technology and cardiac monitoring systems, is highly likely to benefit.

Thus, I am bullish on this stock.

A Fast-Growing Market

The heart valve replacement market is growing very rapidly, and ResearchAndMarkets estimates it will be worth approximately $13 billion globally within three years, a growth rate of more than 11% per year.

The factors that are driving the exponential growth of the global heart valve replacement market are:

– advances in technology

– increasing use of minimally invasive surgery

– flexible reimbursement practices

– broadening of the geriatric population base.

When it comes to the triggers for a heart valve replacement, far more factors play a role than just age over 65 (the geriatric one). Obesity, diabetes, smoking, stress, depression and anxiety are common risk factors in the population and are strongly linked to the lifestyle of this consumer society.

The COVID-19 virus significantly increases the risk of heart valve replacement surgery, as the cardiovascular complications resulting from this infection can severely damage the heart muscle.

For Edwards Lifesciences Corporation, which holds a significant share of the global heart valve market of up to 50% (iDataResearch estimates), the coronavirus could lead to a strong increase in shareholder value in the coming years.

Solid Balance Sheet

As of December 30, 2020, the total cash on hand of $863 million was 1.25 times greater than the total debt of $690.3 million.

However, the following two metrics show that the company has no problem paying the interest expense on outstanding debt, while also having more than adequate funds for other short-term obligations.

The interest coverage ratio is 86.41 (TTM EBIT without unusual items of $1.59 billion divided by TTM interest expense of $18.4 million), while the current ratio is 3.08 (current assets of $3.18 billion divided by current liabilities of $1.03 billion).

High Profitability of Operations

All major financial profitability indicators are improving.

As of December 30, 2021, the trailing 12-month gross profit margin was 76.13% (versus the industry median of 55.68%). It has grown at an annual rate of 74.74% over the past five years.

As of December 30, 2021, the trailing 12-month EBIT margin was 30.32% (versus the industry median of 1.05%). It has grown at an annual rate of 29.31% over the past five years.

As of December 30, 2021, the trailing 12-month net income margin was 28.73% (versus the industry median of -2.27%). It has grown at an annual rate of 20.96% over the past five years.

As of December 30, 2021, the trailing 12-month levered free cash flow margin was 19.28% (versus the industry median of -1.47%). It has grown at an annual rate of 13.23% over the past five years.

These ratios suggest the following:

The funds are efficiently managed, and the company fully reinvests them in the research and development of its products and systems without paying dividends.

Share Price Potential

As a result, the stock has incredible growth potential, trading at a price that appears cheap given the overall bearish sentiment in the market right now.

Distracted by what’s happening in the energy and commodity markets, traders have put healthcare aside and gone full-on into energy and commodity stocks.

Healthcare stocks are among the best to regain momentum in the post-inflation era as COVID-19, which was a catalyst for many of them until a few weeks ago, is far from over.

While the market is currently reflecting other macroeconomic conditions, the issue of COVID-19 continues to demand significant attention through treatments, prevention, vaccination and research.

Stock Statistics

Edwards Lifesciences has a market cap of $74.63 billion, a P/E ratio of 49, and a 52-week range of $81.97 to $131.73.

Wall Street’s Take

Over the past three months, 16 Wall Street analysts have issued a 12-month price target for EW. The company has a Strong Buy consensus rating based on 12 Buys, and four Holds.

The average Edwards Lifesciences Corporation price target is $129.40, implying 7.8% upside potential.

Conclusion

This stock is poised for huge long-term growth. COVID-19 will make the task much easier for Edwards Lifesciences Corporation.

The company manages capital efficiently, and seizes opportunities as they arise. Everything is set for the stock to shoot forward, once traders return to healthcare stocks.

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