Edwards Lifesciences Corporation (EW Quick QuoteEW - Free Report) is gaining investors’ confidence, backed by the performance of the Surgical Structural Heart business. In the first quarter, the Critical Care segment witnessed balanced contributions from all product lines.

The company continued to successfully deliver on its strategy and achieve milestones in pursuit of the significant opportunity to transform care for a large number of patients with mitral and tricuspid disease. However, mounting expenses and an unfavorable foreign currency impact are worrisome.

In the past year, this Zacks Rank #3 (Hold) stock has decreased 11.5% against the 2.6% rise of the industry and a 4.2% rise of the S&P 500 composite.

The renowned global medical device company has a market capitalization of $51.73 billion. Edward Lifesciences has an earnings yield of 2.99% compared to the industry’s -6.92%. EW’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 1.24%.

Let’s delve deeper.

Upsides

Surgical Structural Heart Looks Promising: In the first quarter, Edward Lifesciences’ Surgical Structural Heart business improved on a constant-currency basis, driven by the penetration of its premium products across all regions. The valve surgery growth was higher than the company’s expectations as hospital staffing levels improved, leading to some catch-up in procedures.

The RESILIA portfolio continues to hold strong momentum globally. In addition, the company began the enrolment of its MOMENTIS clinical trial to demonstrate the durability of RESILIA in the mitral position. The increased adoption of the MITRIS Valve in the United States is encouraging.

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Critical Care Business Holds Potential: In the first quarter, Critical Care sales growth was led by the Smart Recovery portfolio and the strong adoption of the Acumen IQ sensor and finger cuff featuring a unique Hypotension Prediction Index algorithm. The demand for Swan-Ganz pulmonary artery catheters and the HemoSphere monitoring platform also remained strong in the first quarter.

The company remains excited about its pipeline of Critical Care innovations as it continues to shift its focus to Smart Recovery technologies designed to help clinicians make better decisions and get patients home to their families faster.

TMTT (Transcatheter Mitral and Tricuspid Therapies) Stands Strong: In the first quarter, the segment’s performance was driven by overall transcatheter edge-to-edge repair procedure growth. The ongoing launch and the growing adoption of PASCAL Precision in Europe and the initial launch in the United States also contributed to the segment’s sales. Clinician feedback on PASCAL Precision has been consistently positive, particularly highlighting the differentiated premium features of the system.

In mitral, Edwards Lifesciences looks forward to presenting one-year data from the full cohort of the CLASP IID pivotal trial later in 2023. In mitral replacement, the enrollment of the ENCIRCLE pivotal trial with SAPIEN M3 is anticipated to complete the enrollment of the main cohort around the end of 2023.

Within tricuspid, FDA recently approved continued access allowing domestic hospitals involved in the clinical trial to continue to offer EVOQUE as a therapy option. In addition, the CLASP II TR pivotal trial with PASCAL continues to enroll well.

Downsides

Foreign Exchange Headwinds: We remain worried about the significant challenges Edward Lifesciences had to face due to an unfavorable foreign currency impact that has been adversely affecting the company’s gross margin over the past few quarters. Per management, significant currency fluctuations could have a material effect on revenues, the cost of sales and operational results.

Escalated Expenses: The contraction of both the margins in the first quarter is discouraging. A year-over-year increase in SG&A expenses reflected increased investments over the prior year in transcatheter field-based personnel to support the growth strategy. For the full-year 2023, EW expects R&D expenses to be 17%-18% of sales, with investments in developing new technologies and generating evidence to support TAVR and TMTT.

Estimate Trend

Edward Lifesciences has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 earnings per share (EPS) has moved up from $2.54 to $2.55 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $5.96 billion. This suggests a 10.7% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Zimmer Biomet (ZBH Quick QuoteZBH - Free Report) , Penumbra (PEN Quick QuotePEN - Free Report) and Hologic, Inc. (HOLX Quick QuoteHOLX - Free Report) .

Zimmer Biomet has an earnings yield of 5.74% compared to the industry’s -2.37%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 9.6% against the industry’s 31.1% decline in the past year.

ZBH carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 129.3% compared with the industry’s 2.6% increase over the past year.

PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.

Hologic, carrying a Zacks Rank #2 at present, has an earnings yield of 4.92% compared to the industry’s -6.92%. Shares of HOLX have risen 5.3% compared with the industry’s 2.6% growth over the past year.

Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.