Edwards Lifesciences Q4 2025: The Expectation Gap in Structural Heart Growth

The fourth-quarter numbers delivered a solid beat, but the market had already priced in the good news. For the quarter ended December 31, 2024, Edwards reported sales of $1.39 billion, edging past the consensus estimate of $1.37 billion. Earnings per share came in at $0.59, topping the $0.55 expectation. This marks the fourth consecutive quarter of EPS beats, a streak that has likely been baked into the stock's trajectory.

On the surface, this is a story of consistent execution. The company reiterated its full-year 2025 guidance, targeting constant currency sales growth of 8% to 10%. That range aligns with the market's current view, meaning the core growth story for next year was already in the price. The real expectation gap, however, lies not in the past quarter's results, but in the forward view they imply. The beat was expected; the guidance reset that follows is what matters.

Growth Drivers: TMTT's Ascent and TAVR's Stumble

The beat was real, but the quality of the growth tells a more nuanced story. The explosive sales of the TMTT portfolio-surging 88% to $105 million in the quarter-showcase a powerful narrative driver. This is the kind of hyper-growth that captures investor imagination and justifies premium multiples. Yet, in the context of the overall business, it remains a small piece of the puzzle, representing just 7.6% of total sales. For all its momentum, TMTT is still an emerging contributor, not a replacement for the core engine.

By contrast, the performance of the core TAVR franchise raises a red flag. Despite the company's strong competitive position and stable pricing, TAVR sales grew only 6% in the quarter, lagging behind the 9% overall sales growth. This divergence suggests the core business is losing some of its earlier steam. The market had priced in continued robust TAVR growth as a key pillar of the 8-10% full-year guidance. When the actual print shows the flagship product line growing at a slower clip than the company average, it creates an expectation gap. It forces a question: is the guidance too optimistic, or is the TMTT surge masking a slowdown in the foundational business?

This tension is compounded by the company's heavy investment in future growth. R&D spending climbed to $417 million last quarter, up from $397 million a year ago. While this fuels the pipeline for next-generation therapies like the SAPIEN M3 mitral replacement, it directly pressures near-term margins. The company already noted a gross profit margin decline to 78.9% for the quarter. Increased R&D and SG&A costs are a necessary cost of building tomorrow's growth, but they weigh on the earnings power that investors are currently paying for. The market's whisper number for profitability may not have fully accounted for this sustained investment phase.

The Guidance Reset: What's Priced In for 2026?

Management's forward view is the new battleground. The company reiterated its 2025 adjusted EPS guidance of $2.40 to $2.50, which implies about 11% growth from 2024. That's a solid target, but it sits below the 12% year-over-year growth analysts expect for 2026. This creates an immediate expectation gap: the market is pricing in a deceleration in the core earnings trajectory, even as the company promises new catalysts.

The most significant near-term catalyst is the anticipated mid-year 2025 approval for an asymptomatic TAVR indication in the U.S.. This is a key growth driver that could expand the addressable patient population. Yet, the current guidance does not appear to bake in any material sales impact from this approval, which suggests management is being conservative. In other words, the guidance is set at a level that already accounts for a "sell the news" dynamic if the approval comes in on schedule. The stock's valuation reflects this cautious stance.

That caution is mirrored in the stock's multiple. Edwards trades at a trailing P/E of 9.79. That's a low multiple for a company with a history of consistent earnings beats and a pipeline of clinical catalysts. It implies the market has already dialed back its growth expectations, pricing in the pressure from heavy R&D investment and the potential slowdown in the core TAVR franchise. The multiple suggests investors see the company as a steady, cash-generating machine rather than a high-growth innovator.

The bottom line is that the forward view is set up for a reset. The company is guiding to growth that is already in the price, while promising a major future catalyst. If the asymptomatic TAVR approval comes through and TMTT continues its explosive run, the guidance could look too low, creating a classic "beat and raise" opportunity. But if the core business continues to lag, the low P/E may not be enough to protect the stock. For now, the market consensus has already priced in a period of measured, not spectacular, growth.

Catalysts and Risks: The Path to 2026

The setup for 2025 is clear, but the path to 2026 hinges on a few specific events that will either validate or challenge the current market view. The primary near-term catalyst is the U.S. FDA decision on the asymptomatic TAVR indication, which management expects by mid-year. This approval is a major growth driver that could expand the patient pool. The market has already priced in a cautious view, as the current 2025 guidance does not reflect any material sales impact from this approval. If the decision comes through on schedule, it could trigger a "beat and raise" dynamic, forcing a guidance reset higher and closing the expectation gap. If it is delayed or comes with restrictive labeling, it would confirm the market's skepticism and likely pressure the stock.

Separately, investors must watch the sustainability of the TMTT surge. The portfolio's 88% growth to $105 million in the fourth quarter was explosive, but it remains a small part of the overall business. The key test will be the first-quarter sales print. A repeat of that hyper-growth rate would signal a powerful new engine is in full swing. A more modest increase, however, would suggest the initial adoption wave may be peaking, turning the TMTT story from a high-growth catalyst into a steady contributor. This trajectory will directly impact whether the company can hit its 8-10% sales growth target without relying on core TAVR.

The biggest risk, however, is that the core TAVR franchise continues to stumble. With sales growing only 6% in the quarter, lagging the overall company growth, the foundation is showing cracks. If this sluggishness persists into 2026, it will force management's hand. The current guidance of 8-10% sales growth already assumes a strong TMTT contribution to offset any TAVR weakness. If TAVR fails to accelerate, the company may have to reset its 2026 outlook downward, widening the expectation gap and likely leading to a re-rating of the stock. For now, the market consensus has priced in a period of measured growth, but the reality of a slowing core business remains the most significant threat to that view.