Concerns about Irvine-based Edwards Lifesciences Corp.’s reliance on heart valve sales have surfaced from time to time.
Late last month they came up again, with Wall Street questioning Edwards’ valve growth potential.
Shares of Edwards fell after the company reported its earnings results last month, even as the device maker recorded a second-quarter profit that nearly tripled to $36 million from a year ago.
Clay Wilson, a Needham & Co. analyst, downgraded Edwards to “hold” from “buy,” citing concerns that the company’s heart valve sales growth has slowed.
Wilson said Edwards’ valve sales growth was 2% in the second quarter, down from a 7% rise in the first quarter and a 15% hike in all of 2005.
Heart valve sales accounted for about 48% of Edwards’ total revenue of $267 million in the quarter.
“We believe that heart valve growth levels over the next two quarters will be very important indicators that will merit close monitoring,” Wilson said in a report.
Edwards Chief Executive Michael Mussallem acknowledged in a release that its underlying valve sales growth “was lower than our historical 10% pace, due primarily to a comparison to a particularly strong second quarter in 2005.”
Frequent Edwards critic Alexander Arrow, an analyst with Lazard Capital, maintained his “hold” rating on the stock. But he warned that its share price could come under pressure because of possible launch delays on two of its newer valves.
And, saying investors are likely to focus on weaker valve sales, Morgan Stanley analyst Glenn Reicin cut his price target on Edwards to $43 from $45.
Shares of the company recently traded at $44.20.
The Motley Fool investor Web site ran an article that examined what it could take for Edwards’ stock price to move closer to $50.
The device maker’s stock has lingered in the mid- to low-$40s since the beginning of 2005. It had steadily increased from its opening price of $20 when Baxter International Inc. spun it off in 2000, wrote Motley Fool’s Ryan Fuhrmann, who doesn’t hold stock in Edwards.
Edwards’ second quarter provided no clear indication of a quick upside because its overall revenue only rose by 3.5%, Fuhrmann said.
But he said he plans to keep the device maker on his watch list because of its heart valve work and favorable demographics,an aging population with growing healthcare needs.
Fuhrmann said he also would look at some competitors of Edwards, such as Medtronic Inc. and St. Jude Medical Inc.
“Overall, the market is extremely competitive and highly regulated, but due to the positive demographics I mentioned, growth opportunities are substantial, and the firms for the most part throw off substantial cash flow,” he wrote.
