Edwards Lifesciences Corporation Analysis – September 2015 Update $EW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Edwards Lifesciences Corporation (EW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Edwards Lifesciences Corporation is focused on technologies that treat structural heart disease and critically ill patients. The Company is engaged in the development and commercialization of heart valve therapies. It is a manufacturer of heart valve systems and repair products used to replace or repair a patient’s diseased or defective heart valve. The Company develops hemodynamic monitoring systems used to measure a patient’s cardiovascular function in the hospital setting. Patients in the hospital setting, including high-risk patients in the operating room or intensive care unit, are candidates for having their cardiac function or fluid levels monitored by the its Critical Care products. The Company’s products and technologies it offers to treat advanced cardiovascular disease are categorized into three main areas: Transcatheter Heart Valve Therapy, Surgical Heart Valve Therapy and Critical Care.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EW – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,958,878,199 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.16 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 387.66% Pass
6. Moderate PEmg Ratio PEmg < 20 30.77 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.67 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 5.16 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.32 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EW value Chart September 2015

EPSmg $4.51
MG Growth Estimate 15.00%
MG Value $173.71
Opinion Fairly Valued
MG Value based on 3% Growth $65.42
MG Value based on 0% Growth $38.35
Market Implied Growth Rate 11.13%
Current Price $138.82
% of Intrinsic Value 79.91%

Edwards Lifesciences Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividends and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.75 in 2011 to an estimated $4.51 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 11.13% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Edwards Lifesciences Corporation (EW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

EW Charts September 2015

Net Current Asset Value (NCAV) $8.88
Graham Number $44.34
PEmg 30.77
Current Ratio 5.16
PB Ratio 6.67
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $2,297,000,000
Total Current Liabilities $445,200,000
Long-Term Debt $600,300,000
Total Assets $3,608,300,000
Intangible Assets $389,800,000
Total Liabilities $1,319,700,000
Shares Outstanding (Diluted Average) 110,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.10
Dec14 $7.48
Dec13 $3.44
Dec12 $2.48
Dec11 $1.98
Dec10 $1.83
Dec09 $1.95
Dec08 $1.10
Dec07 $0.94
Dec06 $1.05
Dec05 $0.64
Dec04 $0.02
Dec03 $0.65
Dec02 $0.46
Dec01 -$0.10
Dec00 -$2.41

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.51
Dec14 $4.29
Dec13 $2.58
Dec12 $2.05
Dec11 $1.75
Dec10 $1.54
Dec09 $1.31
Dec08 $0.91
Dec07 $0.76
Dec06 $0.64
Dec05 $0.40
Dec04 $0.10
Dec03 $0.00
Dec02 -$0.35
Dec01 -$0.67
Dec00 -$0.80

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Medical Industry – June 2015
The 6 Best Stocks For Value Investors This Week – 6/13/15
Edwards Lifesciences Corporation Analysis – June 2015 Update $EW
18 Companies in the Spotlight This Week – 3/15/15
Edwards Lifesciences Corporation Quarterly Valuation – March 2015 $EW

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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