Company Reports

Narrow-moat Edwards Lifesciences kicked off the year with solid results, and the slight adjustments we’ve made to incorporate stronger growth in the transcatheter mitral and tricuspid business (TMTT) weren’t enough to shift our fair value estimate. While quarterly Sapien sales grew 8% in constant currency and adjusted for billing days, the TMTT business displayed unexpected strength by growing at 75%, albeit off a much smaller base. Nonetheless, this fast start in 2024 led management to raise its outlook for that product segment and indicate revenue for the year would be at the higher end of guidance. Our full-year estimates were already on the high side and remain bounded by management’s range.

Over the last two decades, Edwards Lifesciences has demonstrated that it knows how to maintain leadership through innovation of tissue heart valves. Edwards remains the dominant force in surgical heart valves and minimally invasive valve therapy—one of the hottest areas in cardiac devices.

Narrow-moat Edwards Lifesciences finished 2023 with strong performance that slightly exceeded our expectations on the top line but met them on the bottom line. Our modeling adjustments were immaterial and we’re leaving our fair value estimate unchanged at $86. Quarterly revenue rose 13% in constant currency, with broad strength across all product categories. Consistent with recent quarters, transcatheter aortic valve replacement sales grew in the low-double digits. With data from the Early TAVR trial expected in the fall, we think favorable data among the asymptomatic severe aortic stenosis patients could shore up demand through our explicit forecast period, which could ease underlying market concerns that the pool of aortic stenosis patients has been exhausted.

Edwards Lifesciences posted third-quarter results that largely met our top- and bottom-line expectations, and we're leaving our $86 fair value estimate unchanged. With quarterly sales of transcatheter aortic valve replacements, or TAVR, up 10% in constant currency, the firm is on track to meet our full-year estimates. Shares appear moderately undervalued—unusual for this narrow-moat company that has historically traded above our intrinsic value.

Over the last two decades, Edwards Lifesciences has demonstrated that it knows how to maintain leadership through innovation of tissue heart valves. Edwards remains the dominant force in surgical heart valves and minimally invasive valve therapy—one of the hottest areas in cardiac devices.

Edwards Lifesciences posted solid second-quarter results, with top-line growth putting it on track to slightly exceed our full-year expectations and the bottom line closely tracking with our projections. Our small adjustments were immaterial to our $86 fair value estimate. Edwards’ established reputation for innovation was on display again this quarter, solidifying the intangible assets that support its narrow economic moat.

Narrow-moat Edwards Lifesciences posted first-quarter results that generally fell in line with our expectations, and we’re leaving our fair value estimate unchanged. Top-line growth early in the first quarter displayed more strength than expected in this seasonally soft period, which management chalked up to some delayed patients reaching the treatment stage after the holidays. Recent improvements in hospital staffing likely also played a role in easing the capacity bottleneck at providers seen in 2022. All in all, the solid performance at Edwards in the first quarter underscores the trend in increased healthcare utilization that’s been seen across device makers, labs, and hospitals.

Edwards Lifesciences posted full-year results that landed very close to our projections with no big surprises. Our 2023 estimates remain bounded by management’s outlook, and we’re leaving our fair value estimate intact. The U.S. roll out of Pascal and impending read outs from several transcatheter mitral and tricuspid clinical studies have underscored this firm’s formidable ability to innovate, which lies at the heart of its narrow economic moat. Edwards has built up a culture that is focused on product superiority and excellence in operations that comprise some of the intangible assets that this firm benefits from. Considering the firm’s ability to dominate both surgical valves and transcatheter aortic valves and our confidence in the firm’s ongoing commitment to innovation (even with a management change on tap), we think Edwards has the elements to potentially reach wide moat status. However, the firm’s outsized reliance on heart valves is the key factor that has kept us from tipping the firm into wide moat territory.

Edwards Lifesciences shared its outlook for 2023 at its investor day, and considering our projections for the various product lines and earnings remain bounded by management’s estimates, we’re leaving our fair value estimate unchanged. We’ve long admired the firm’s robust investment in research and development, its long-term view of creating superior technology, and its commitment to a commercial structure to support practitioners in delivering optimal patient outcomes—all of which contribute to the intangible assets that add up to a narrow economic moat.

Edwards Lifesciences shares swooned after the firm posted tepid third-quarter results that were out of character, given that Edwards has consistently ridden the wave of double-digit growth in its transcatheter aortic valve replacement device largely since the product was launched in the United States more than a decade ago. We’ve lowered our fair value estimate to $86 per share from $93 after reducing our projections for TAVR growth through 2023, as we expect hospitals will not have completely resolved their labor challenges by then. On the other hand, we were pleased to see the firm receive Food and Drug Administration approval on its Pascal Precision device earlier than expected. Edwards’ ability to commercialize this differentiated technology underscores the intangible assets that have allowed the firm to dig a narrow moat.

Over the last two decades, Edwards Lifesciences has demonstrated that it knows how to maintain leadership through innovation of tissue heart valves. Edwards remains the dominant force in surgical heart valves and minimally invasive valve therapy—one of the hottest areas in cardiac devices.

Edwards Lifesciences delivered uncharacteristically muted second-quarter results, and we’ve modestly lowered our fair value estimate by $3 to $93 per share after dialing down our assumptions for 2022 and 2023 to reflect foreign currency headwinds and pressure on procedure volume that is expected to linger into 2023. Despite these near-term issues, we see little to change our thinking on Edwards’ narrow economic moat. Indeed, the firm’s ongoing development of its transcatheter mitral valve therapies and supporting clinical trials should add to the intangible assets that support the moat.

Over the last two decades, Edwards Lifesciences has demonstrated that it knows how to maintain leadership through innovation of tissue heart valves. Edwards remains the dominant force in surgical heart valves and minimally invasive valve therapy--one of the hottest areas in cardiac devices.

Healthcare innovation represents a key area of exponential growth, and we think the scientific community's understanding of medical interventions has increased significantly over time and is likely to continue fast-paced development during the decades ahead. Within healthcare innovation, we view two key areas of explosive growth potential: innovative therapies and innovative devices and diagnostics, the latter of which is the focus of our new research. While the medical device and diagnostic industry's innovation engine appears mostly evolutionary to us, revolutionary innovations can represent the spark that both pioneers new markets and widens economic moats through the intangible asset source that is often present in medtech. Massive growth in scientific advancements and medical articles, along with major increases in medical patents, supports exponential growth opportunities in certain pockets of the medtech industry, in our opinion.

Edward Lifesciences posted another quarter of double-digit top and bottom line growth that generally met our expectations, and we’re leaving our fair value estimate unchanged for now. While the omicron variant depressed procedure volume in January, procedures resumed as the quarter unfolded. However, even as patients return for heart valve treatment, hospital labor shortages have continued to exert pressure on procedure volume, which we think could act as a drag on Edwards through the rest of the year. Despite these changing conditions in the hospital, we remain confident in Edwards’ narrow moat, supported by intangible assets, as well as some switching costs associated with its Sapien TAVR product.

Healthcare innovation represents a key area of exponential growth, and we think the scientific community’s understanding of medical interventions has increased significantly over time and will likely continue to grow in a non-linear upward trajectory during the decades ahead. Within healthcare innovation, we view two key areas of explosive growth potential: 1) innovative therapies and 2) innovative devices and diagnostics. High spending on research and development, massive growth in scientific advancements (and medical articles), steep increases in clinical studies, and major growth in medical patents all support exponential growth opportunities in key healthcare areas. This innovation not only supports strong growth potential but also the intangible assets that are the basis of many economic moats and leadership positions in healthcare.

Despite the drag of the omicron variant and falling short of consensus expectations, Edwards Lifesciences finished off the full year very close to our projections, and we’re leaving our fair value estimate unchanged for now. In terms of revenue, transcatheter aortic valve sales hit our projection on the nose, while surgical valve, transcatheter mitral, and critical care clocked in just over our estimates, but this wasn’t enough to materially move our valuation. Fourth-quarter cost containment generally met our expectations, with gross margin slightly outpacing our estimates, which was offset by sales and marketing expenses that ran ahead of our projections. Though the path of the pandemic remains volatile, we see little to suggest the firm’s narrow economic moat is under pressure. Importantly, the firm has continued to invest in product development and clinical studies to support innovation in the pipeline, which we believe will pay off over the long term.

Over the last two decades, Edwards Lifesciences has demonstrated that it knows how to maintain leadership through innovation of tissue heart valves. Edwards remains the dominant force in surgical heart valves and minimally invasive valve therapy--one of the hottest areas in cardiac devices.

Edwards posted a solid third-quarter performance that leaves the firm on track to meet our full-year projections. Our adjustments based on the latest quarter were minimal, but we may modestly raise our fair value estimate to reflect both time value of money as well as quarterly profitability that slightly exceeded our expectations. Nonetheless, Edwards did not raise its outlook, as many medical device makers have at this late stage in the year, which we think likely contributed to softening in the share price. We remain confident in Edwards’ narrow economic moat and see little to change our view of the firm’s ability to innovate and its expertise in structural heart.

As with many medical device firms, narrow-moat Edwards Lifesciences saw strong performance in second quarter, fueled by the resumption of cardiac procedures as vaccinations have taken hold. After adjusting our full-year projections for transcatheter aortic valves, surgical valves, and critical care slightly upward, we’re raising our fair value estimate to $84 per share, up from $72, to better reflect what we suspect may be more robust flow of new patients into the referral and treatment pipeline. These adjustments were partially offset by our expectation that the U.S. corporate tax rate will rise to 26% after 2021. Nonetheless, shares remain overvalued, from our perspective.