ResMed (RMD): Zacks Rank Buy

Zacks

ResMed (RMD) sees 2013 earnings increase and has recently become a Zacks #1 Rank (Strong Buy).

Company Description

ResMed Inc., through its subsidiaries, engages in the development, manufacture, and distribution of medical equipment for treating, diagnosing, and managing sleep-disordered breathing and other respiratory disorders. It offers various products for the treatment of obstructive sleep apnea and other respiratory disorders, including airflow generators, diagnostic products, mask systems, headgear, ventilation devices, and other accessories, such as cold pass over humidifiers, carry bags, and breathing circuits.

ResMed Tops Estimates in Five of Last Seven Quarters

ResMed has topped the Zacks Consensus Estimate in five of the last seven quarters. The five beats though not consecutive, have been increasing in both absolute and percentage terms. The average beat works out to be $0.035 more than estimated or a 9.2% positive surprise. When the misses are added into the average the beat amount slides to $0.02 or 5.4%. The stock moved higher by nearly 2% on average following just the beats, but moved lower by an average of 1.2% when the misses are added in.

The biggest price impact came following the December 2011 quarter, the stock rose more than 9% following a 10% positive earnings surprise. The company reported earnings of $0.42, $0.04 more than the Zacks Consensus Estimate. Revenues of $333 million were approximately $7 less than the Zacks Consensus Estimate and represented a 9% increase from the year ago period.

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ResMed Most Recent Reported Earnings

On April 26, 2012 ResMed reported revenue of $349 million, roughly $9 million higher than the Zacks Consensus Estimate and up from $310 million reported in year ago quarter, an increase of 62%. In addition, earnings per share came in at $0.46, $0.05 higher than the Zacks Consensus Estimate of $0.41. The beat of 12% helped lift the stock higher by 7.5% in the session following the release.

ResMed Sees Estimates Moving Higher

ResMed has seen earnings estimates move higher following the recent positive earnings surprise. The Zacks Consensus Estimate for 2012 was as low as $1.55 in December 2011 and has since moved to $1.70. That represents an increase of more than 9.6%.

Estimates for 2013 have also seen an increase following the most recent quarterly release. The Zacks Consensus Estimate for 2013 stood at $1.81 and has since moved to $1.95. The increase of 7% for 2013 is good by aggressive growth investors who are really keying in on the 14.7% expected earnings growth rate from 2012 to 2013. With another solid beat, that growth rate is likely to increase to more than 20%.

Valuation

The valuation for ResMed is slightly higher than the industry average on most of the metrics that aggressive growth investors look to. The forward PE multiple of 20x is higher than the 15x industry average, and the trailing twelve months PE of 21x carries a similar premium to the industry average of 15x. Price to book is closer to being in line with the industry at 3x compared to 2.4x, while price to sales shows a bigger premium with a 3.6x multiple for ResMed and 2x industry average.

The Chart

A quick look at the price and consensus chart shows a lot of what aggressive growth investors are looking for. The growth between the estimated earnings lines shows the good history of earnings performance, and the recent dip was more or less telegraphed by earlier reductions in 2013 earnings. With estimates moving back higher for 2012 and 2013 ResMed has moved to a Zacks #1 Rank (Strong Buy) as of May 12, 2012.

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Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

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