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Edwards Lifesciences Corp (EW): Is This Fallen Angel Still a Good Growth Play?

Additionally, the higher taxes on medical devices imposed by the Obama administration at the start of this year are yet another concern for the US manufacturers, with Edwards Lifesciences Corp (NYSE:EW) landing the top spot.



EW EPS Diluted Quarterly YoY Growth data by YCharts

In short, competition is starting to hamper revenue growth a little, however Edwards continues to deliver high EPS growth.

The bullish case

What’s welcoming is that despite the forecast miss, Edwards managed to deliver 35.8% year-over-year growth in non-GAAP diluted earnings and 8.2% growth in revenues. The company still boasts the highest revenue growth, the highest return on assets and equity, the highest gross and net profit margins and the lowest debt-to-equity among all of its rivals. The only competitor closely following suit is Medtronic.



EW Revenue Quarterly YoY Growth data by YCharts

Now, bear in mind that Medtronic is a dividend-paying stock with lower-than-average industry growth and low price multiples and holds a bigger presence in Europe, while Edwards Lifesciences Corp (NYSE:EW) is a non-dividend-paying stock that rewards shareholders with share repurchases, projects a higher-than-average industry growth with higher price multiples and has a bigger presence in the US market. Hence, comparing solely the performance of the two stocks (and not companies) wouldn’t be fair, per se.

Bottom line

A forward P/E of 21.44 and an analyst-estimated average EPS of $3.05 give Edwards a fair value of around $65, close to where it’s trading now. Edwards may have the second-highest percentage of its float short, yet the short interest has decreased since the April slump, indicating its shift towards relative fair valuation.

Short Interest Change in Short Interest
EW 3.55% -5.61%
MDT 1.29% +16.78%
BSX 2.82% +11.45%
STJ 3.69% +9.81%

The company’s strength in the U.S., the clinical success of the improved SAPIEN XT Valve, the healthy revenue and earnings growth and the best fundamental metrics among competitors make it a buy. However, the mounting threat of competition in Europe, pressures to innovate in the wake of new and improved devices and techniques being constantly introduced in the market and taxation are reasons to be wary.

I have been bullish on Edwards Lifesciences Corp (NYSE:EW) for a year and still believe it’s a growth story, but with the recent course of events, I recommend holding the horses just a little longer before going long or short on the stock.

Palwasha Saaim has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic.

The article Is This Fallen Angel Still a Good Growth Play? originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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