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Here's Why You Should Hold on to ResMed (RMD) Stock for Now

Zacks Equity Research

ResMed Inc.’s RMD Software-as-a-Service (SaaS) business continues to gain from steady growth in Brightree service offerings as well as additional contribution from the buyouts of MatrixCare and HEALTHCAREfirst. However, pricing pressure in the United States and Europe has been a staggering issue in the past few quarters

In the past year, the stock has outperformed its industry. The stock has gained 21% compared with the industry’s 0.2% decline.

This leading designer, manufacturer as well as global distributor of generators, masks, and related accessories for the treatment of sleep-disordered breathing and other respiratory disorders has a market cap of $19.53 billion.

This Zacks Rank #3 (Hold) company has solid prospects which makes it an appropriate stock to retain.

What’s Working in Favor of the Stock?

Progress in Sleep Apnea Franchise: In terms of progress in sleep apnea franchise, ResMed now has more than 11 million patients being monitored with the AirView software, the company’s cloud-based platform for managing sleep apnea and COPD patients. Also, more than 10 million of all cloud connectable ResMed devices have been installed into the market.  The company is witnessing solid uptake of the AirSense 10 device platform and the Air Solutions cloud-based software ecosystem.

 

Buyouts to Boost SaaS Business: ResMed has been consistently undertaking buyouts to boost revenues from SaaS business. In the last reported quarter, the company witnessed 111% rise in revenues from the SaaS business on continued expansion of Brightree, HEALTHCAREfirst and MatrixCare.

Increased focus on Product Development:  In this regard, the company recently expanded its AirFit mask portfolio with the introduction of its first top-of-head-connected nasal CPAP mask, AirFit N30i, in the United States.The company’s flagship masks, the AirFit F20 in the full-face category and the AirFit N20 in the nasal category continued to witness solid momentum across global markets through the fourth quarter. Its three most recent mask launches — the F30, the N30i and the P30i — have started contributing to the top line.

Downsides:

However, there are a few factors that are exerting pressure on the stock as well.

Dull Device Sales: In fourth-quarter fiscal 2019, device sales in France and Japan were affected as customers completed their connected device upgrade programs. The company expects this impact to persist in the next few quarters.

Competitive Landscape: The market for SDB products is highly competitive with respect to product price, features and reliability. ResMed’s primary competitors are Philips BV, DeVilbiss Healthcare, Fisher & Paykel Healthcare Corporation Limited, Apex Medical Corporation, BMC Medical Co. Ltd. and regional manufacturers.

Which Way Are Estimates Treading?

For the first quarter of fiscal 2020, the Zacks Consensus Estimate for earnings is pegged at 84 cents that indicates a year-over-year decline of 3.7%. The same for revenues stands at $657.2 million, suggesting a 11.7% year-over-year rise.

For fiscal 2020, the Zacks Consensus Estimate for earnings is at $3.92, calling for 7.7% year-over-year growth. The same for revenues stands at $2.86 billion, which suggests a rise of 9.9% year over year.

Stocks Worth a Look

A few better-ranked stocks in the broader medical space are Medtronic MDT, Baxter BAX and Amedisys AMED, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is expected at 7.13%.

Baxter’s long-term earnings growth rate is projected at 12.8%.

Amedisys’ long-term earnings growth rate is expected to be 16.26%.

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