Medical Stocks

Edwards Lifesciences Corp Valuation – March 2019 $EW

Company Profile (excerpt from Reuters): Edwards Lifesciences Corporation, incorporated on September 10, 1999, 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 is globally engaged in patient-focused innovations for structural heart disease and critical care monitoring. Its segments include United States, Europe, Japan and Rest of World. Its products are categorized into three areas: Transcatheter Heart Valve Therapy, Surgical Heart Valve Therapy and Critical Care. It also develops hemodynamic monitoring systems that are used to measure a patient’s cardiovascular function in the hospital setting. The Company’s Transcatheter Heart Valve Therapy and Surgical Heart Valve Therapy products are manufactured in the United States, Singapore and Switzerland. Critical Care products are manufactured in its facilities located in Puerto Rico and the Dominican Republic. Its subsidiaries include Edwards Lifesciences Asset Management Corporation, Edwards Lifesciences CardiAQ LLC., Valtech Cardio Inc. and Red Hill Insurance Corporation.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EW – March 2019

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 $36,091,033,254 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.61 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 258.21% Pass
6. Moderate PEmg Ratio PEmg < 20 47.51 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.73 Fail
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 2.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.42 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

EPSmg $3.66
MG Growth Estimate 8.64%
MG Value $94.29
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $53.01
MG Value based on 0% Growth $31.08
Market Implied Growth Rate 19.51%
Current Price $173.71
% of Intrinsic Value 184.24%

Edwards Lifesciences Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.32 in 2015 to an estimated $3.66 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.51% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Edwards Lifesciences Corp revealed the company was trading above its Graham Number of $41.72. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 47.51, which was below the industry average of 53.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.49.

Edwards Lifesciences Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $0.49
Graham Number $41.72
PEmg 47.51
Current Ratio 2.61
PB Ratio 11.73
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,286,900,000
Total Current Liabilities $876,600,000
Long-Term Debt $593,800,000
Total Assets $5,323,700,000
Intangible Assets $1,455,400,000
Total Liabilities $2,183,300,000
Shares Outstanding (Diluted Average) 212,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.15
Dec2018 $3.38
Dec2017 $2.70
Dec2016 $2.61
Dec2015 $2.25
Dec2014 $3.74
Dec2013 $1.71
Dec2012 $1.23
Dec2011 $0.99
Dec2010 $0.92
Dec2009 $0.98
Dec2008 $0.55
Dec2007 $0.47
Dec2006 $0.53
Dec2005 $0.32
Dec2004 $0.01
Dec2003 $0.32
Dec2002 $0.23
Dec2001 -$0.05
Dec2000 -$1.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.66
Dec2018 $2.92
Dec2017 $2.66
Dec2016 $2.53
Dec2015 $2.32
Dec2014 $2.14
Dec2013 $1.28
Dec2012 $1.02
Dec2011 $0.87
Dec2010 $0.77
Dec2009 $0.66
Dec2008 $0.46
Dec2007 $0.38
Dec2006 $0.32
Dec2005 $0.20
Dec2004 $0.05

Recommended Reading:

Other ModernGraham posts about the company

Edwards Lifesciences Corp Valuation – May 2018 $EW
12 Best Stocks for Value Investors This Week – 2/4/17
Edwards Lifesciences Corp Valuation – January 2017 $EW
Edwards Lifesciences Corp Valuation – August 2016 $EW
15 Best Stocks For Value Investors This Week – 2/13/16

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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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