Can This Medical Device Leader Bounce Back?


It seemed like nothing but blue skies ahead for Edwards Lifesciences (NYS: EW) back in early October. Shares were up more than 50% year-to-date and traded at 52-week highs. Then the sky fell.

On Oct. 9, the company announced that it missed sales forecasts for the third quarter. The stock fell 18%, the largest one-day drop in 12 years. Edwards shares haven't been able to rebound much since that point. However, the company announced solid 2013 forecasts today. Shares climbed around 5% on the news.

Can Edwards Lifesciences bounce back to its previous highs? Let's take a look.

Edwards projects sales growth of 13% to 16% and earnings growth of 25% in 2013. The company's Sapien transcatheter heart valve stands to be one of the biggest springboards to achieve this growth. Management expects global sales growth to be in the range of 30% to 45% for its transcatheter heart valve business. That rate would put total sales for the unit in the $710 million to $790 million range.

The Intuity surgical heart valve system could be another catalyst for growth. Edwards plans to launch the product in Europe during 2013. The company projects sales of $800 to $840 million next year for its surgical heart valves, which reflects growth of 4% to 6% compared to 2012.

Critical care monitoring systems should contribute to growth, although to a lesser extent than other products. Edwards projects that advanced monitoring systems, including two new products for non-invasive monitoring and glucose monitoring, will help grow critical care sales by 4% to 6% in 2013. This growth would mean total critical care sales of $560 million to $600 million.

What could keep the stock from bouncing back? Several potential bounce-busters could emerge.

Europe could continue to be problematic. Other medical device companies have already experienced headwinds resulting from the implementation of European austerity programs. For example, Intuitive Surgical (NAS: ISRG) cited European challenges as a factor in its disappointing third-quarter results. Edwards encountered similar problems last quarter. Europe represented nearly 31% of Edwards' total sales in the first nine months of 2012.

Any snags in regulatory or reimbursement approvals could be troublesome. Edwards' third-quarter results were less than the company had hoped in part because of a delayed U.S. reimbursement decision. The company faces several approval hurdles in 2013, including regulatory and reimbursement approvals in Japan for Sapien XT. It also hopes to receive the European CE Mark for the Sapien 3 valve in late 2013.

Competition could also be more fierce than Edwards anticipates. St. Jude Medical (NYS: STJ) received approval in November to market its Portico transcatheter heart valve. Boston Scientific (NYS: BSX) is expected to receive approval for its valve sometime in 2013. Medtronic (NYS: MDT) already sells its CoreValve transcatheter heart valves in Europe and other countries, although a recent court decision could impede its ability to enter the U.S. market.

Bouncing back
I expect shares for Edwards Lifesciences to bounce back to the high levels enjoyed just a few months ago. However, don't look for the bounce to be as rapid as the fall.

The company continues to invest heavily in research and development. Long-term trends such as the growth of health care spending in emerging markets bode well for Edwards. If the company can execute well, Edwards could see more blue skies ahead.

Bouncing higher?
Medical device stocks can represent terrific opportunities for growth investors. Early investors in Intuitive Surgical, for example, experienced unimaginable gains, some making as much as 30 times their initial investment. Even with those enormous gains in the rearview mirror, the stock could have plenty of room to run into the future.

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Fool contributor Keith Speights has no positions in the stocks mentioned above. The Motley Fool owns shares of Intuitive Surgical, Medtronic, and St. Jude Medical. Motley Fool newsletter services recommend Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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