Edwards Lifesciences

EW : NYSE : US$64.17
Target: US$79

Edwards Lifesciences manufactures minimally invasive
medical devices for the cardiovascular market. Its
primary product line is centered on heart valve therapy
and includes tissue valves, mechanical valves, and repair
products. It has a large offering for critical care, with key
products for hemodynamic and pressure monitoring

Life Sciences — Biomedical Devices and Services
Investment recommendation
We reiterate a contrarian call to buy EW, especially on pullbacks such as the
one after market, notwithstanding solid Q4 results, reiteration of ’14 guidance
and myriad silver linings (OUS TAVI, easy ’15 comps).
We believe consensus is focusing on the wrong things – specifically near-term
“announcements” such as timing of FIM for mitral THV, even though it’s
unlikely to be a commercial product within the next half decade. By contrast,
Q4 OUS TAVI results showed compelling growth acceleration that materially
exceeded our/Street estimates. EW is taking TAVI share in Europe and
building momentum via its recent launch in Japan, which we think could add
$40M to EW’s worldwide TAVI franchise in 2014. US TAVI came in line with
guidance, and although we think FDA approval could come earlier than we
model for SAPIEN XT, we still expect a challenging year in US TAVI owing to
MDT CoreValve launch.
However, the upside we’re seeing in OUS TAVI allows us to maintain our
forward year TAVI estimates through 2017 – which portends acceleration in
2015 and beyond – while at the same time making our US estimates more
conservative. As we opined in the wake of EW’s analyst day in December, we
think 2015 is the year on which investors should focus, as easing comps and
new product drivers portend accelerating growth, which we think will drive
multiple expansion. We reiterate our BUY rating and raise our target to $79.
Investment highlights
 Total sales were $550M (+8% Y/Y), well above our/consensus
$537/$533M, while pro forma EPS of $0.91 dwarfed our/consensus
 Near-term catalysts include: 1) FDA approval of XT (modeling June;
March possible); 2) CHOICE data at ACC in March; 3) FIM MTHV

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