Edwards Lifesciences Corp

We have followed Edwards for many years as both a leading structural heart company and a competitor to Medtronic’s CoreValve platform. Over the last decade, Edwards effectively 'bet the company' on TAVR technology and successfully established its Sapien platform as one of the leading transcatheter heart valve systems globally while maintaining a meaningful presence in surgical aortic valve replacement (SAVR). Today, TAVR represents the core of Edwards’ business and is supported by a large global installed base, extensive physician training and extensive clinical data, which we believe positions the company for continued growth and profitability.

We retain conviction as Edwards' lead in replacement therapies for mitral and tricuspid valves, which combined with a total addressable market that could approach the scale of core TAVR provides a durable and differentiated growth runway that competitors are years away from replicating. Shares of Edwards Lifesciences Corporation rose due to solid first quarter results and an updated Medicare coverage decision for transcatheter aortic valve replacement (TAVR), which has the potential to increase procedure volumes.

Edwards Lifesciences is a genuinely high-quality business with a real clinical moat in transcatheter heart valves and unrivalled procedure data. However, the current valuation at approximately 30x trailing earnings—double the average rating of the broader Castlebay portfolio—suggests the market is pricing it for near-perfection. This is concerning, especially as the company has concentrated its earnings into a single product category following the sale of its Critical Care division, which now means its TAVR business accounts for over three quarters of revenues. Given these factors, we decided to sell our position.

We added to the position as the core aortic valve franchise has been reaccelerating and demand for newer tricuspid valves has been rapidly growing, expanding Edwards’ addressable market. This next product cycle is supported by strong clinical data and increasing physician adoption, with Edwards gaining share as competing solutions have struggled to match its clinical outcomes. After several years of heavy investment to support long-term growth, we expect stronger revenue growth to drive margin expansion.

Edwards Lifesciences develops innovative cardiac devices that reduce patient recovery times and enhance patient outcomes. We believe the market is underestimating the durability of Edwards' transcatheter aortic valve replacement franchise and the opportunity for its transcatheter mitral and tricuspid therapies. Given its strong product path over the next three years, we see significant potential for growth.

Edwards Lifesciences also contributed to performance during the quarter. The Company presented favorable seven-year data for its transcatheter aortic valves, whereas competitive valves have exited several key markets. Edwards can drive double-digit earnings growth over the next few years, as its long-term data serves to evolve the standards of care and will make it easier for patients, doctors, and health systems to opt for its minimally invasive alternatives versus open heart surgery.