Edwards Lifesciences Corp (EW): A Strong Buy on Recent Dip – Medtronic, Inc. (MDT), St. Jude Medical (STJ)

Medtronic has maintained its strong position as it has operated here for a longer time than Edwards. But thanks to the U.S. courts, Edwards Lifesciences Corp (NYSE:EW) has been able to effectively stop Medtronic, Inc. (NYSE:MDT) from building a similar stronghold in the U.S., where more than 5000 patients have so far been treated with its SAPIEN valve.

Back in Europe, another competitor, St. Jude Medical, Inc. (NYSE:STJ) has also received approval for a similar device called the Portico heart valve replacement device, thus making competition fiercer. Amid the strict austerity measures and hospital budget cuts in the continent, the European market for Edwards still managed to show growth, which is welcoming.

Attractive financials

Thirdly, a quick overview of financials substantiates Edwards Lifesciences Corp (NYSE:EW)’s stronger position against its competitors. The company has a history of strong revenue and EPS growth. For a quick comparison with competitors, Medtronic, Inc. (NYSE:MDT), Boston Scientific Corporation (NYSE:BSX) and St. Jude Medical, Inc. (NYSE:STJ), see charts below.

Chart 1: Comparison of Year-over-Year Quarterly Revenue Growth

EW Revenue Quarterly YoY Growth data by YCharts

Chart 2: Comparison of Year-over-Year Quarterly Diluted EPS Growth

EW EPS Diluted Quarterly YoY Growth data by YCharts

The primary reason for Edwards’ high growth potential has been its ability to maintain high gross and net margins. Edwards also boasts the lowest debt to equity. One thing that raises concern is the high short interest in Edwards at over 4%, while Medtronic and St. Jude’s have 1% and 3.6% of their floats short, respectively. But this could also mean that a price jump can be expected as the shorts cover their positions.

Edwards Lifesciences Corp (NYSE:EW) doesn’t pay dividends, but returns cash to its shareholders via share repurchases. For the full year 2012, around 4 million shares were repurchased for $353 million. For this year’s first quarter, management has guided total sales to be in the range of $505 million to $530 million, and diluted EPS between $0.74 to $0.78.

In a nutshell

A forward P/E of 26.11 and a full year estimated EPS of $3.37 gives the stock a conservative fair value of $85.34. The company’s growing strength in the U.S., recovery in Europe, and new entry in Japan where none of its competitors have yet entered, along with the clinical success of its SAPIEN devices, all indicate its strong future prospects. It’s a definite buy!

The article Edwards Lifesciences: A Strong Buy on Recent Dip originally appeared on Fool.com and is written by Palwasha Saaim.

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