Edwards Lifesciences: Stretched Valuation And Bearish Resistance In Play (NYSE:EW)

The momentum factor was a popular smart beta play during much of the 2010s through early last year. Often chocked full of high-growth names, investors got a thrill seeing the iShares MSCI USA Momentum Factor ETF (MTUM) outperform the strong S&P 500 over that time. MTUM rebalances at the end of each May and November. And that strategy worked well since 2013. Unfortunately, a few ill-timed rebalances into the underperforming sectors lately have left MTUM unchanged vs SPY over the last nine years. All its alpha is gone since the peak in speculative fervor notched early last year.

MTUM Vs SPY Since Last 9 Years: Alpha Has Disappeared

According to iShares, MTUM is now most heavily invested in the Health Care sector at a whopping 29% weight as of August 12. Health Care has been the worst performing sector so far in the second half. One large-cap stock in the space finds itself up more than 20% from the June low, though.

According to Bank of America Global Research, Edwards Lifesciences (NYSE:EW) provides devices and technologies for structural heart disease, and critical care and surgical monitoring. EW is a leader in transcatheter heart valve replacement – one of the most visible, innovative, and exciting markets in the medical device sector.

The California-based $65 billion market cap Health Care Equipment & Supplies industry company trades at a high price-to-earnings ratio north of 45 times (LTM), according to The Wall Street Journal. Edwards does not pay a dividend.

Analysts at BofA see moderate earnings growth over the next two years. Still, EW’s price-to-earnings ratio is not expected to retreat into bargain territory any time soon. Moreover, the company trades at a high EV/EBITDA multiple and free cash flow is soft. That is a stretched valuation in my eye.

EW Earnings, Valuation, Free Cash Flow Forecasts

EW’s corporate event calendar is light until its unconfirmed Q3 earnings date of Wednesday, October 26, according to Wall Street Horizon. There is, though, the Wells Fargo Healthcare Conference 2022 at which Edwards’ management team is expected to speak. The September 7-9 event held in Massachusetts could spark some share price volatility.

Edwards Lifesciences Corporate Event Calendar: Conference & Earnings

The Technical Take

Ahead of two upcoming events and with an expensive valuation, is there a buying opportunity seen in the charts? Unfortunately for the bulls, I see more bearish than bullish risk. EW’s rally could sputter at resistance around current levels. The $105 to $110 range has been significant in the past, and I expect that congestion to be resistance here. I think traders can buy the dip in the $96 to $98 area with a stop under the June low under $85.

EW: Shares Reaching A Bearish Congestion Zone

The Bottom Line

The Health Care sector was a safe haven throughout the tumultuous first half of the year. Since July 1, however, the group has been the weakest stock market niche. Edwards Lifesciences has done well vs the sector but has run into a key resistance zone. Moreover, long-term investors should not be attracted to EW’s high valuation. I would avoid the stock for now.