Opportunity in Edwards Lifesciences

aplus's picture

On April 24th Edwards had a downside surprise in their earnings announcement.  They reported .72/share against a consensus estimate of .76 cents, and the stock  dropped from $82 to $66.  The company is still showing year over year growth, albeit not at the pace that analysts were expecting.  The core business still looks solid and growth in their transcathether aortic valve (TAV) revenue should be above there don't seem to be any present risks to the long term rollout of the Sapien heart valve in the United  States.  The main concern with the business seems to be that they couldn't get enough doctors trained and  hospitals stocked with the equipment to sell their devices.  

There is potential concern over how profitability will be impacted by Medicare reimbursement in the future.  Sales could drag at a slower pace for another quarter or two, and competition from other companies such as Medtronic or Boston Scientific could put market share at risk.  The stock is also trading below 50 and 200 DMA, so it is below recent support levels.  

On the bright side, in mid May the company approved a $750,000,000 share repurchase program, and CEO Michael Mussallem announced he would personanlly buy $5 million worth of the company's stock.  These are encouraging signs, and we believe that this stock has upside in it.  This is a great stock to own in the healthcare sector.  It has a growth story to it, they innovate like a technology company, and they have a leadership team that seems committed to success.

We executed a trade today to buy stock in EW at $63.80, and we see two scenarios here.  The stock may run up to the $67-70 range within the next few weeks as it bounced back from the earnings drop.  This could be opportunity for a quick profit of up to 10%. 

Longer term, we see EW getting back to the $77-83 range. 

We have a downside stop at $61.00, if it breaks below that we will get out.




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