How High Can This Medical Device Stock Go?

Today was a textbook case of why earnings season is such an important time for investors. While the broader indices remained largely flat today, several market bellwethers were on the move today. Upscale fast food chain Chipotle Mexican Grill (CMG) fell short of estimates, while biotech giant Gilead Sciences (GILD) spooked investors with talk of increased competition in the Hepatitis C treatment market. Meanwhile, both General Motors (GM) and The Walt Disney Company (DIS) wowed investors with better-than-expected Q4 results.

Amidst all of the excitement, one medical devices company stood out from all others. While there are several healthcare companies that I’m keeping in my playbook, this one in particular is looking great for 2015. It is…

A Global Leader in Heart Valves

If you haven’t heard of it already, Edwards Lifesciences Corp. (EW) is the world’s largest creator of artificial heart valves, including valves made from animal tissue and annuloplasty rings that repair damaged valves. Other major products include heart monitoring systems, and various types of surgical tubes and catheters. EW markets its products worldwide through a direct sales force and distributors.

Beyond traditional heart valves, Edwards leads the way in nonsurgical heart valves with its Sapien product line, which offer patients a less invasive alternative to open heart surgery. Sapien valves have been used in treating 85,000 patients around the world and it is the most studied transcatheter valve in medical history.

As a medical device company, Edwards is uniquely positioned to benefit from the changing healthcare climate. This was demonstrated by the firm’s stunning fourth-quarter report:

Earnings Buzz

EW rallied today after the firm blew analysts’ estimates away for the fourth quarter. In 2014, Edwards Lifesciences launched several new products that helped the company maintain its edge in its corner of the medical devices market. Last quarter, sales of its global transcatheter heart valves (THV) jumped 46% over last year. Edwards Lifesciences also reported solid growth with its surgical heart valves and its Critical Care product group.

So compared with the year ago quarter, net sales advanced 15% to $618.0 million. Over the same period, net income improved 45% to $109.2 million, or $1.00 per share. Excluding special items, adjusted earnings were $166.5 million, or $1.06 per share. Analysts had forecasted $0.95 adjusted EPS on $610.64 million in revenue, so Edwards Lifesciences posted a healthy 12% earnings surprise and a modest sales surprise.

And the way management sees it, Edwards Lifesciences has another solid year ahead of it. For the first quarter the firm expects to bring in between $570 million and $610 million in revenue and per share earnings of $1.02 to $1.10. The earnings forecast was well above the Street view of $0.92 per share.

For FY 2015, Edwards Lifesciences is targeting sales of $2.3 billion and per share earnings of $4.00 to $4.30, above its previous range of $3.90 to $4.10. This guidance also tops the Street view of $4.03 EPS.

The Bottom Line

It’s easy to see why EW caused such a stir with its earnings report today, and I expect more things to come from this medical devices company. EW is a Strong Buy .


Louis Navellier

Louis Navellier

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