Edwards Lifesciences Corp. is still Orange County’s most valuable publicly traded company, but just barely, after a rough end to October on Wall Street.
After the Irvine-based manufacturer of heart stent valves on Oct. 27 reported results that missed expectations and revised downward its annual forecast, its shares fell 18% in the following trading session.
In one day, Edwards lost $10 billion worth of its market cap that is now around $42.5 billion, just above that of Newport Beach’s Chipotle Mexican Grill Inc. (NYSE: CMG).
Only four publicly traded companies based in OC have a market valuation larger than $10 billion.
At the beginning of this year, Edwards’ market cap was $81 billion. Its shares have fallen to about where they were in October 2020, prior to a steep run-up in price.
The biggest reason for last month’s decline was the company slashed its annual forecast for earnings to $2.40 to $2.50 a share, down from a prior forecast of $2.50 to $2.65 a share.
The new forecast also missed the analysts’ consensus for $2.51 a share. The company forecast 2022 sales at the low end of its prior range of $5.35 billion to $5.55 billion.
“We anticipate hospital staffing challenges and a predictive difficult winter COVID and flu season will continue into next year,” Chairman and Chief Executive Mike Mussallem told analysts on a conference call to explain the new forecast. That will lead to less procedures using the company’s products, the company said.
Third-quarter sales were $1.32 billion and adjusted profit of 61 cents a share; both missed analysts’ expectation for $1.33 billion and 62 cents a share.
The results also missed the company’s own expectations.
“Our sales of $1.32 billion in the quarter, representing growth of 6.7% on a constant currency basis, fell short of our expectations, driven by a slower-than-expected recovery of U.S. hospital staffing and COVID in Japan,” Chief Financial Officer Scott Ullem told analysts on the call.
Analysts on average aren’t expecting great sales growth, estimating 2.6% this year followed by 6.9% in 2023.
Shares ‘Expensive’
Edwards’ stock was overvalued, according to some analysts, who said it was trading at a 31 price-to-earnings ratio, based on GAAP profits.
“That’s about 50% more expensive than the average S&P 500 stock—and looks really expensive for a stock that’s only growing sales and earnings in the low-single digits,” Motley Fool analyst Rich Smith wrote after the results were released. “Investors selling off Edwards Lifesciences stock today are right to do so.”
Good Progress
Mussallem told analysts that the company had several successes in the third quarter, including “good progress” on multiple clinical trials and next-generation technologies.
In August, the company received European regulatory approval for Pascal Precision, a system designed for transcatheter-based edge-to-edge leaflet repair in patients suffering from mitral and tricuspid regurgitation. In September, it received early U.S. FDA approval for Pascal Precision for the treatment of patients with degenerative mitral regurgitation.
Also in September, it announced approval to begin selling the Sapien 3 Ultra Resilia valve in the U.S. Additionally, during the third quarter, enrollment accelerated in its two TAVR pivotal trials that are evaluating patients with moderate AS and Alliance for its next-generation TAVR technology, Sapien X4.
“The third quarter strengthened our conviction in our company’s patient-focused innovation strategy,” Mussallem said.
More than 30,000 patients were treated with Sapien across more than 2,000 global TAVR centers during the third quarter.
$10B Opportunity
Edwards has been telling investors that it can grow overseas, saying its underlying three-year compounded annual growth rate outside the U.S. remains in the mid-teens.
However, that growth has been hampered by a strong dollar; the U.S. dollar index, which measure the greenback against a basket of other currencies, was up 17% in the first nine months this year.
Even though sales outside of the U.S. grew 18% to $1.7 billion for the first nine months this year, they represented 42% of overall sales, which is actually down from 43% during the same period a year ago.
Mussallem remained optimistic by setting a long-term goal that revenue can about double within the next six years.
“We’re not kidding when we say we still believe that there’s a $10 billion opportunity in 2028,” he told analysts. “We’re highly confident in that and I think we’re on a path to achieve it.”
