Edwards Lifesciences operates in four divisions, but the main one, Transcatheter Aortic Valve Replacement (TAVR), accounts for 64.6% of sales. Cardiac surgery equipment accounts for 16.6% of the total. The Transcatheter Technology business (TMTT) is the smallest (just 3.3% of revenues), but the fastest-growing. Finally, the critical care business, which offers advanced hemodynamic monitoring systems to assess cardiac function and fluid status in surgical patients, is the fastest-growing.(15.5% of sales), will be spun off at the end of the year into an independent company so that the Group can refocus its attention on its other, more profitable divisions.

Evolution of the Group's structure after the Critical Care demerger (source: Forbes)

With these four divisions, Edwards Lifesciences focuses exclusively on heart devices. It has to be said that the market is pretty huge. In the United States, an average of one death is caused by cardiovascular problems every 33 seconds. The demand for devices is colossal. The compound annual growth rate (CAGR) of the Group's main specialty (TAVR) is estimated at 15% between now and 2028. This compares with 30% for TMTT, the smallest division.

Critical care, on the other hand, is growing more slowly. The medium-term growth rate is expected to be around 5%. This is currently the company's least profitable division. On paper, therefore, the decision to divest is an attractive one. All the more so as, in the industry, this kind of refocusing strategy is quite common and generally works quite well. Pfizer, GSK, Becton, Dickinson and Medtronic have all done so, selling off segments with lower added value.

The problem is that other major companies (Abbott, Boston Scientific and Medtronic again) have sniffed out the aortic valve business (TAVR). Edwards Lifesciences is still the world market leader, but competition is fiercer than ever. As a result, pressure on margins cannot be ruled out for the next few years. For the time being, analysts anticipate only a very slight decline in operating margin. Time will tell.

Market share in TAVR's core business (source: Bloomberg)

However, this modest decline in profitability should in no way detract from the quality of Edwards Lifesciences' published figures. Growth is strong. Between 2014 and 2023, sales rose from $2.2 billion to $6 billion. Profitability, though somewhat volatile, has improved all the same. The net margin now easily exceeds 20%, whereas it was hovering around 18% before the pandemic. The company's strong cash generation - the famous free cash flow - and its balance sheet, which shows a net cash position (cash - debt) in excess of one billion dollars, are also worthy of note. Finally, profitability ratios are quite remarkable. In recent years, ROE has ranged widely between 20% and 30%. It's good to see that shareholders' equity is being put to good use.

Valued at around 32 times earnings for this year and 29 times for next, Edwards Lifesciences' multiples are close to its historical average. The current price is fairly close to the average target of the 32 analysts who follow the stock. The relative pressure on margins in the medium term, this year's growth slightly below historical levels over the past decade (CAGR of 11.1% since 2014 vs. expected between 8 and 10%), the normalization phase of earnings after three excellent years, and finally the modest downward revisions by analysts, do not justify expecting much of the stock in the short term. On the other hand, a downturn could be taken advantage of by a long-term investor.