Edwards Lifesciences Lifted to Hold

On Dec 28, Zacks Investment Research upgraded medical device major, Edwards Lifesciences Corp. (EW) to a Zacks Rank #3 (Hold). While we are still worried about the expected U.S. launch of a competitor’s product in the coming year, the improving market trend is building confidence.

Why the Upgrade?

The competitive landscape is turning increasingly fierce for Edwards these days. Following the U.S. Food and Drug Administration’s (FDA) approval to review Medtronic's (MDT) Extreme Risk and High Risk studies on CoreValve, we are currently concerned about the launch of this highly competitive product in the U.S. market, scheduled for the second quarter of 2014. We believe this might reduce Edwards' revenue growth rate significantly by altering its position in the U.S market.

However, we are upbeat about several positive takeaways by the company in the recent times. After a disappointing start to 2013, Edwards reported improved third-quarter results. Earnings per share and revenues increased 17.2% and 11% year over year, respectively, to 68 cents and $495.6 million. The top and the bottom line also exceeded the Zacks Consensus Estimate of 66 cents and $488 million, respectively.

THV and surgical heart valve sales in the quarter were also encouraging, as was a healthy margin expansion. Reimbursement approval forSAPIEN XT in Japan remains another material upside. We believe that emerging markets represent meaningful sales opportunity. Edwards’ pipeline also looks promising as launch of lucrative products should accelerate growth over the long term.

Meanwhile, notwithstanding the macroeconomic climate, Europe presents a large and growing market for valves. Further, market opportunity is likely to grow significantly on the back of demographic trends and increasing awareness. Unlike the past several quarters, EW recorded healthy performance in Europe, especially for the THV franchise.

Stocks That Warrant a Look

While we remain on the sidelines regarding Edwards at present, one can consider better-ranked healthcare stocks like Heska Corp. (HSKA) and InSite Vision Inc. (INSV), both carrying a Zacks Rank #1 (Strong Buy).

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