Yahoo Finance Reasons Why You Should Invest in ResMed (RMD) Stock Now
ResMed Inc. RMD is well poised for growth in the coming quarters, backed by strong mask and device sales globally. Strength in the Software-as-a-Service ("SaaS") business continues to benefit the company. The ongoing uptake of both AirSense 11 and AirSense 10 platforms buoys optimism. However, weak margins and macroeconomic challenges raise apprehension.
In the past year, the Zacks Rank #2 (Buy) stock has lost 14.2% compared with a 32.3% fall of the industry and a 12.4% decline of the S&P 500.
The renowned medical device company has a market capitalization of $31.66 billion. The company’s long-term expected growth rate of 15.7% for earnings compares with the industry’s long-term growth expectation of 15.3% and the S&P 500’s estimated 11.3% rise. Its earnings surpassed estimates in the trailing two quarters, met estimates on one occasion and missed on another, delivering an average surprise of 2.88%.
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Let’s delve deeper.
Factors At Play
SaaS Business Grows: The SaaS business registered revenue growth of 7.8% on a year-over-year basis during the fiscal third quarter. The upside was driven by high-single-digit growth across home medical equipment (HME) and facility-based and home-based care settings. The company also saw increased customer utilization of software and data solutions, including the landmark Brightree and SNF ReSupply products, in the quarter under review.
Global revenues from SaaS in the fiscal third quarter represented an 8% increase at CER year over year.
Robust Mask Sales: ResMed recorded increased masks and other sales in the United States, Canada and the Latin-America region in the fiscal third quarter, where growth was 7% on a reported basis. The robust growth indicated solid resupply revenue achieved amid a challenging device supply environment. In combined Europe, Asia and other markets, masks and other sales rose 6% on a reported basis and 13% at CER, benefitting from higher patient flow compared with the prior year’s levels.
Recovery in Device Sales: In the fiscal third quarter, ResMed’s device sales improved 30% year-over-year in the United States, Canada and Latin America region. The sales performance benefited from incremental revenues from a competitor's recall and a favorable product mix as the company sold an increased proportion of higher acuity devices. In the combined Europe, Asia and other markets, the rise in device sales was 10% at CER. Furthermore, device sales increased 21% at CER on a global basis.
Strong Emphasis on Product Development: We are upbeat about ResMed’s continued focus on product development and innovation. The ongoing U.S. launch of the next-generation device platform AirSense 11 continued to be met with great success in the fiscal third quarter. Management expects to launch the AirSense 11 into additional countries in the fiscal fourth quarter and throughout fiscal 2023.
In addition, the company also continued to sell its market-leading legacy platform, the AirSense 10, including the newly-released AirSense 10 card to cloud devices. The AirSense 10 card to cloud device eliminates the primary bottleneck of the 3G and 4G comms chip and facilitates secure data upload to the cloud-based software platform AirView.
Downsides
Weak Margin Scenario: ResMed’s adjusted gross margin contracted 151 basis points (bps) in the fiscal third quarter, primarily owing to higher freight component and manufacturing costs. Meanwhile, escalating operating expenses resulted in a 218-bp contraction of adjusted operating margin, building significant pressure on the bottom line.
Macroeconomic Headwinds: The persistent supply-chain challenges related to securing sufficient components hamper ResMed’s ability to meet the growing device demand. The volatility surrounding COVID-related restrictions across the globe are persistent challenges.
Estimate Trend
Over the past 60 days, the Zacks Consensus Estimate for ResMed’s fiscal 2022 earnings has moved north to $5.74 by a penny.
The Zacks Consensus Estimate for its fiscal 2022 revenues is pegged at $3.58 billion, suggesting an 11.9% rise from the 2021 comparable figure.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, Novo Nordisk NVO and Merck & Co., Inc. MRK.
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 13.4% against the industry’s 46% fall.
Novo Nordisk has a long-term earnings growth rate of 14.5%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 7.6%, on average. It currently flaunts a Zacks Rank #2.
Novo Nordisk has outperformed its industry in the past year. NVO has gained 29% against the industry’s 15.9% growth.
Merck has a long-term earnings growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13.4%, on average. It currently carries a Zacks Rank #2.
Merck has outperformed its industry in the past year. MRK has gained 17.9% against the industry’s 15.9% growth.
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