October 9, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of artificial-heart-valve maker Edwards Lifesciences (NYSE: EW ) plummeted 19% today after its third-quarter revenue outlook disappointed Wall Street.
So what: Edwards shares have soared in 2012 on impressive sales, but today's warning -- management expects third-quarter sales of just $448 million versus the consensus of $476.5 million -- is forcing Mr. Market to sober up. Management cited government austerity measures in Europe and Medicare coverage issues in the U.S. for the weak demand, triggering plenty of concern over Edwards' growth rate going forward.
Now what: Despite the shortfall, management sees a strong rebound in the fourth quarter and still expects to meet the low end of its full-year sales guidance. "We remain enthusiastic about the potential of this transformative technology to improve the lives of many of the patients who suffer from severe aortic stenosis," Chairman and CEO Michael Mussallem reassured investors. When you couple the strong headwinds working against Edwards with the stock's still-lofty P/E of 40, however, buying into that bullishness seems rather risky at this point.
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