Dear Mr. Berko:
I took your advice on AT&T. I’m holding my nose and reinvesting the dividends on 800 shares. I also bought 500 shares of Edwards Lifesciences at $22 in 2009 and have a huge profit. Is this a buy, sell or hold?
— N.L., Wilmington, N.C.
You’re a darn smart lady.
Research and development remains among the most significant contribution to expanding revenues, and during the past dozen months, medical device companies, such as Edwards Lifesciences, are recognizing the importance of a good pipeline. Now they’re aggressively expanding their R & D, with clinical trials underway in a race to control the consumer market. However, the pathway to advanced and superior products is often blocked by the Food and Drug Administration’s odious and stinking bureaucracy. Enormous backup trials and a forced market device regulation, even for legacy products in the EU, have encouraged medical device companies to focus on improving market share in the cardiovascular field. And Edwards Lifesciences, a highly esteemed $3.7 billion-revenue technology company that treats heart disease, will continue to prosper.
Edwards Lifesciences (EW-$174.43) designs, manufactures and sells technologies to treat patients the world over. EW’s products treat structural heart diseases in critically ill patients, even in Tehran, Pyongyang and Sanaa. This company is a global leader in the science of heart valves and hemodynamic monitoring. EW is a world leader in transcatheter heart valve therapy products and a world leader in pericardial valves for aortic and mitral valve replacement. Other leading products are annuloplasty rings, nonsurgical replacement valves, beating heart mitral valve replacement systems and cardiac cannula devices. Additional surgical solutions are critical care products such as systems to measure heart functions in intensive surgical settings, as well as pulmonary artery catheters and clinical monitoring platforms to display the patient’s psychological status. EW’s products are about as sexy and exciting as a Japanese Kabuki dance. But your 500 shares, which cost $22, split 2-for-1 in 2010 and again in 2015. You now have 4,000 shares at $174.43 each, worth almost $700,000. That gain should warm the cockles of your heart.
EW looks like an opportunity for long-term growth, and numerous analytical services — including Bank of America, Deutsche Bank, Credit Suisse, UBS, Citicorp, Oppenheimer and Thomson Reuters — are recommending EW at $174. Operating margins and net profit margins are making record highs, as is return on shareholder equity. And even the venerable Value Line believes that EW could trade in the $250-$270 range in the coming three years. This company has clean numbers, including a ridiculously low debt that’s only 12 percent of capital and a very generous cash flow of $5.70 per share, with expected 2019 earnings of $5.20 share, up 10 percent from last year’s $4.70. Still, I wonder why several officers and directors recently sold 200,000 shares at prices ranging from $155 to $169 a share. In fact, there hasn’t been any insider buying since Donald Trump’s inauguration in January 2017.
The cardio field is becoming increasingly competitive, and EW expects to report slightly lower-than-anticipated revenues for 2019, $4.18 billion, though that still would be higher than last year’s $3.7 billion. Management also recognizes that revenues from its transcatheter aortic valve replacement therapy, which accounts for 59 percent of revenues, were shy of Wall Street’s expectations. Still, many of the medical equities, including EW, have experienced notable increases in their stock prices during the past six months. EW has never paid a dividend and probably won’t because the board’s a bunch of cheap rogues. I seldom recommend stocks that don’t pay dividends, though I’ll make an exception here. EW’s share price during the past 52 weeks has been between $121 and $175. And going out to 2023, several on the Street think EW will split 2-for-1 once again and have revenues of $5.9 billion and earnings of $7.65 a share. Keep EW for another decade.•
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or email him at firstname.lastname@example.org. The opinions expressed in this column are those of the author.
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