We came across a bullish thesis on Edwards Lifesciences Corporation (EW) on Substack by Natan. In this article, we will summarize the bulls’ thesis on EW. Edwards Lifesciences Corporation (EW)’s share was trading at $73.22 as of Jan 30th. EW’s trailing and forward P/E were 28.27 and 30.21 respectively according to Yahoo Finance.
A skilled surgeon surrounded by a team of medical professionals performing a Transcatheter Heart Valve Replacement.
Edwards Lifesciences, a leader in the MedTech space, particularly in heart valve solutions, has long been recognized for its strong market position and impressive stock growth, with a 16% compound annual growth rate (CAGR) over the past two decades. However, the company has recently faced a transitional period, which has resulted in underwhelming returns for investors in the past five years. Despite these challenges, Edwards is well-positioned for future growth, with expectations for double-digit growth fueled by its deep focus on innovation in the structural heart market. Over the past 12 years, the company’s revenue and operating income have more than tripled, while maintaining operating margins above 25%, underlining the strength of its business model and the quality of its products.
A critical component of Edwards’ success is its leadership in the $7 billion transcatheter aortic valve replacement (TAVR) market, where it holds over 50% market share. This segment generates roughly 75% of the company’s revenue, and its strong performance has driven Edwards’ industry-leading profit margins, typically above 20%. The company’s focus on structural heart disease has given it a distinct competitive edge, which was further strengthened by its decision to sell its critical care division to Becton Dickinson, enabling Edwards to concentrate entirely on its structural heart portfolio. Despite fluctuations in margins, which have been influenced by acquisitions and the launch of new products in the Transcatheter Mitral and Tricuspid Technologies (TMTT) business, margins are expected to recover and grow to 28% by 2030, reflecting the long-term strength of the company’s strategy.
In recent years, Edwards has experienced a decline in its price-to-sales multiple, falling from 16x to 7x, as market concerns about future growth have weighed on investor sentiment. However, Edwards is positioning itself for long-term success. In 2024, Edwards sold its critical care division for $4.2 billion, a move that temporarily reduced revenue but allowed the company to sharpen its focus on the structural heart market. A portion of the proceeds from this sale was used to acquire four smaller companies, further expanding Edwards’ valve offerings. While growth in the TAVR market has slowed due to capacity constraints in medical centers, Edwards’ expansion into new areas such as TMTT, aortic regurgitation (AR), and heart failure (HF) is expected to drive significant future growth. The TMTT segment alone, with the potential for $2 billion in annual revenue by 2030, presents a major growth opportunity for the company. Edwards’ ability to innovate and its strategic focus make it well-positioned to continue commanding a premium valuation, even in the face of short-term challenges.
The company’s TAVR business continues to be the cornerstone of its success, having grown from 10,000 procedures annually to 130,000, with Edwards commanding 50-55% of the global market share and over 70% of the U.S. market. The introduction of the Sapien X4 valve generation and the expected approval of Early TAVR for asymptomatic patients by mid-2025 will likely help Edwards maintain its leadership position in the TAVR space. Additionally, the expansion of TAVR centers to accommodate more patients is expected to further drive market growth. Edwards also sees significant potential in the aortic regurgitation (AR) market, where the majority of patients remain untreated. Through the acquisition of J-Valve and JenaValve, Edwards is developing a TAVR solution for AR, with the potential to replicate the success of its Sapien devices and significantly expand its addressable market.
Beyond TAVR and AR, Edwards is focusing on the mitral and tricuspid valve repair and replacement market, which is poised to become a new engine for growth. The company’s Pascal MR device, the upcoming Sapien M3 mitral replacement system, and the Evoque tricuspid valve system are expected to generate strong demand, with the TMTT market forecast to grow by 50-60% annually, reaching $500 million by 2025 and potentially quadrupling to $2 billion by 2030. Edwards anticipates revenue growth of 8-10% in 2025, driven by TAVR and TMTT, despite temporary cost pressures from acquisitions. Looking further ahead, Edwards expects an average annual revenue growth rate of 10% starting in 2026, with key segments such as TAVR and TMTT driving this expansion. By 2030, the company anticipates total revenue of $10 billion.
Edwards’ capital allocation strategy, which includes share buybacks during periods of stock weakness, reflects the company’s confidence in its long-term prospects. Despite challenges, Edwards is trading at a historically low P/E multiple of 29x, presenting an attractive entry point given its strong margins, high growth potential, and financial stability. With a fair value estimate of $91 per share, Edwards represents an investment with 30% upside from its current price of $70, suggesting an expected annual return of 14% over the next six years. While risks such as losing TAVR leadership or difficulties scaling new segments remain, the stock’s current undervaluation provides a significant margin of safety, making it a compelling investment opportunity with substantial upside potential.
Edwards Lifesciences Corporation (EW) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held EW at the end of the third quarter which was 47 in the previous quarter. While we acknowledge the risk and potential of EW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.