Will Edwards Lifesciences Stock Reach Its Pre-Inflation Shock High of $130?

Edwards Lifesciences

EW
(NYSE: EW), a medical technology company specializing in artificial heart valves, currently trades at $76 per share, roughly 10% below the level seen in March 2021, and has potential for higher levels over time. can be seen. EW stock was trading at around $95 in early June 2022, just before the Fed started raising rates, and is now down 20% from that level, compared to the S&P 500’s 16% gain during the period. This poor performance of EW stock can be attributed to slower-than-expected sales growth for its transcatheter aortic valve replacement business. Furthermore, investors are still concerned about a possible recession, despite a steady decline in the inflation rate in response to the Fed’s aggressive rate hike plan.

We note that the Sharpe ratio of the EW stock has been 0.5 Since the beginning of 2017, approx. 0.6 for the S&P 500 Index over the same period. it is compared to Sharp of 1.3 For Trefis Reinforced Value Portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

A return to pre-inflation shock levels of around $130 means EW stock has more to gain from 70% from here, and we don’t think it’ll be a reality anytime soon. From the current level, there is a possibility of an increase in it, he said. EW stock is trading on 8x Revenue compared to surrounding levels 12x In 2019, before the pandemic. Our Edwards Lifesciences Valuation Ratio Comparison There are more details in the dashboard.

EW stock enjoyed a high valuation multiple before the pandemic. However, with TAVR’s sales growth coming in below expectations, partly due to hospital staffing shortages seen in the recent past, the slight decline in valuation multiple is justified. The company reported revenue per share of $9.25 for the trailing twelve months, and its trailing three-year average P/S multiple of around 10x, which implies a valuation of $92 and a 20% upside from its current level.

our detailed analysis of Edwards Lifesciences gets a windfall after inflation This reflects the trends in the company’s stock during the turbulent market conditions seen in 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 inflation shock

Timeline of the inflationary shock so far:

• 2020 – Early 2021: Commodities are in high demand due to an increase in the money supply to cushion the effect of the lockdown; Manufacturers are unable to match.
• Early 2021: Shipping disruptions and labor shortages are affecting supplies due to the coronavirus pandemic.
• April 2021: Inflation rises further past 4%.
• Early 2022: Energy and food prices rise due to the Russian invasion of Ukraine. The Fed began its rate hike process.
• June 2022: Inflation reaches 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from its peak.
• July-September 2022: The Fed hikes interest rates aggressively – resulting in an initial correction in the S&P 500 followed by another sharp decline.
• From October 2022: Fed continues rate hike process; Improving market sentiment helped the S&P 500 recoup some of its losses.

In contrast, here’s how EW stock and the broader market performed during the 2007/2008 crisis.

Timeline of the 2007–08 crisis

• 10/1/2007: Estimated pre-crisis peak in the S&P 500 index
• 9/1/2008 – 10/1/2008: Market decline accelerates in line with Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Estimated Bottom for the S&P 500 Index
• 12/31/2009: Initial correction to levels prior to sharp decline (circa 9/1/2008)

EW and S&P 500 performance during the 2007–08 crisis

EW stock saw a modest decline of 5% between August 2008 (the pre-crisis peak for EW) and March 2009 (as the market bottomed). It rose after the 2008 crisis to a level of around $7 in early 2010, having increased by about 55% between March 2009 and January 2010. The S&P 500 index saw a decline of 51%, falling from a high of 1,540 in September 2007 to 757 in March 2009. It then increased by 48% to a level of 1,124 between March 2009 and January 2010.

EW fundamentals in recent years

Edwards Lifesciences Revenue rose from $4.3 billion in 2019 $5.4 billion in 2022, led by its TAVR products, primarily the Edwards SAPIEN platform. Company’s operating margin increased 26.4% in 2019 33.4% In 2022. Our Edwards Lifesciences Operating Earnings Comparison There are more details in the dashboard. Its earnings per share in 2022 stood at $2.46, compared to $1.68 in 2019.

Does EW have enough cash to meet its obligations through the ongoing inflationary shock?

Edwards Lifesciences’ total debt has been around $600 million in recent years, while it has about $1.2 billion in cash. The company also projects $1.2 billion in cash flow from operations in 2022. Given that Edwards Lifesciences’ net debt is negative, it is in an excellent position to meet its near-term debt obligations.

conclusion

With the Fed’s efforts to control rampant inflation helping market sentiment, we believe EW stock has potential for gains once fears of a potential recession dissipate. That said, the slowdown in TAVR sales growth remains a risk factor to the realization of these gains.

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