Happy New Year, Edwards!
Palwasha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Twenty-twelve was the year of the Medical Devices Industry. The iShares Dow Jones Medical Devices ETF showed gains of over 14% year-to-date and has returned about 37% since inception. Companies like Edwards Lifesciences (NYSE: EW) and Intuitive Surgical (NASDAQ: ISRG) reached never-seen-before highs, returning 27.89% and 11.69%, respectively, during 2012. Medtronic (NYSE: MDT) also showed recovery from its Great Recession slump, returning 10.11% this year. Limping behind but still showing small gains were Boston Scientific (NYSE: BSX) and St. Jude Medical (NYSE: STJ) with 6.5% and 0.9% returns, respectively, exclusive of dividends.
However, as the new year begins in less than three weeks, bad news is going to start pounding at their doors. To support Obamacare, an excise tax of 2.3% has been imposed on sales of all medical devices, which comes into effect as the new year sun rises on January 1. Whether the company is profitable or suffering losses, the tax cannot be evaded. This future expense has already scared the players of the said industry who are now either postponing their expansion plans or looking for ways to cut down on costs elsewhere--like jobs. Although, these medical device manufacturers are lobbying hard to get the tax repealed and are also having some bipartisan support for the cause, but it remains uncertain at the moment as to whether they'll succeed or not.
Yet, there's one company that's reiterating that their guided positive outlook for the coming year is no gimmick. Management at Edwards Lifesciences, the global leader in the research and development of heart valves and hemodynamic monitoring, reassured its shareholders earlier this month that they can safely expect to see strong double-digit sales and earnings growth in 2013. Global sales of its leading product, transcatheter valves, are expected to grow to range between $710 million and $790 million in the coming year.
CEO Michael Mussallem is extremely optimistic about the company's recent launch of transcatheter valves in Japan--a relatively new market for this technology, and also the sales boost Edwards will receive after FDA's recent approval of use of their signature SAPIEN heart valve for high risk patients. Overall, for the dreaded year 2013, the company is guiding an underlying sales growth of 13%-16%, a gross profit margin of 74%-76%, diluted EPS growth of more than 25% and free cash flows of $300 million to $340 million, excluding special items.
Good news for the company doesn't end there. Santa just granted Edwards with the best Christmas present they could wish for--U.S. Appeals Court's ruling in favor of Edwards that their biggest competitor Medtronic infringed upon Edwards' transcatheter valve patent. Medtronic's CoreValve is a direct threat to Edwards' SAPIEN valve. Medtronic's strong presence in Europe has already been denting Edwards' European sales and now the rival was about to enter the US market with its competing valve. The court's verdict is going to award Edwards an initial payment of $74 million in damages and additional substantial damages are expected to be paid in the near future.
Edwards is doing just fine in the US, but brace yourself up for future bad news coming from Europe. The company has shown positive sales growth in recent quarters in all of its international regions except Europe. Medtronic continues to maintain its stronghold there and now St. Jude Medical also receives European approval for its Portico heart valve replacement device.
Nonetheless, with only 2.8% of its float short, decreasing short interest, heavy institutional holding, a history of earnings beats in 5 out of the last 7 quarters, increased investment in R&D and a monopolistic position in the country, EW is a must-own stock. The only thing that stops it from becoming the most-wanted stock is the lack of dividends. Hopefully, you availed the opportunity of buying EW when the time was right.
An advance happy new year to Edwards!
PalwashaS has no positions in the stocks mentioned above. The Motley Fool owns shares of Medtronic and St. Jude Medical. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!