MV Ideas - Three Ideas to Supercharge your Summer

The market has been temperamental with only a handful of stocks leading the US Indices higher. Many stocks are either making new 52-week lows or at the very least, are looking weak.

Today we look at three companies - one healthcare, one energy / utilities, and one tech/industrial - obviously some of these have the AI enabler angles.

I’ve been watching these companies for a while and now, we seem to have gotten a window of opportunity to enter these names.

Edward Lifesciences

The Trade:

• Today’s Price: $91

• 3-6 month Price Target: $96 (+5.6%)

• Over 1 year Price Target: $105 (15.5% upside)

• Stop Loss: $85

EW is recognized for its innovative transcatheter aortic valve replacement (TAVR) technology, which has expanded treatment options for elderly patients by offering a less invasive alternative to open-heart surgery. The company was spun off from Baxter International in 2000.

The market for TAVR is maturing, prompting concerns about sustaining growth. Despite doubts, the stock has remained largely unchanged over the past year, presenting a potential investment opportunity.

Investment Thesis

• EW is exploring new patient populations for TAVR, including asymptomatic and moderate patients, with clinical trials (EARLY TAVR and PROGRESS) expected to expand the serviceable addressable market (SAM). This could be a major catalyst for them, as it opens up a whole new market of opportunities for early detection and life-saving treatments.

• EW is spinning off its Critical Care business with a sale to Becton Dickinson for about $4.2B in cash. The company aims to use these funds to focus on internal processes, manufacturing facilities, and organic growth. Further acquisitions are a secondary goal. The company will also repurchase shares at appropriate prices to manage their share count.

• EW is poised to drive future growth through new technologies, including transcatheter mitral and tricuspid valves (TMTT). The mitral valve replacement (MVR) market is expected to grow from $1.0 billion in 2023 to $2.1 billion in 2028, with the tricuspid valve replacement (TVR) market projected to increase from $140 million in 2023 to $1.7 billion by 2028.

• EW has solid profit margins - Gross Profit Margin at about 76.6%; Net Profit Margin at about 23%. Revenue growth has been about 11.5% YoY as of 2023, with insignificant debt of about 0.4x Debt-to-EBITDA.

• Valuation is slightly high with a PE of 39x and Forward PE of 34x. Nevertheless, the Return on Equity is about 20%, and the company has solid plans to achieve its growth targets. EW is positioned to achieve accelerating top-line growth in 2025, with sales and EPS estimates projected to be 2-8% above consensus for 2025-2027.

Risks:

The major risks for the company are that EW's attempts to innovate in MVR and TVR may be unsuccessful, and the transition from TAVR to new valve technologies and a broader patient base might encounter difficulties, leading to a significant decline in sales growth.

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