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

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·4 min read
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ResMed Inc. RMD is well poised for growth in the coming quarters, backed by rising adoption of digital health solutions and other tools. Solid mask sales, along with strategic deals, are expected to contribute further. However, stiff competition and reimbursement headwinds persist.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 15.6% compared with 18.6% growth of the industry and 49.5% rise of the S&P 500 composite.

The renowned designer, manufacturer and distributor of medical devices and cloud-based software solutions to manage respiratory disorders has a market capitalization of $28.12 billion. The company projects 13.7% growth for the next five years and expects to maintain its strong performance. Further, it has delivered an earnings surprise of 22.21% for the past four quarters, on average.

Let’s delve deeper.

Strong Q3 Results: ResMed’s robust third-quarter fiscal 2021 earnings buoy optimism. It is encouraging to note that the company witnessed recovery in core patient flow, and rising adoption of digital health solutions and other tools to aid remote care amid the pandemic. In the quarter, the company’s Software-as-a-Service (SaaS) arm performed impressively. Expansion of operating margin buoys optimism.

Strategic Pacts: ResMed’s strategic buyouts to boost revenues from the SaaS business raise our optimism. The SaaS business saw a strong growth during the fiscal third quarter, driven by continued strong uptake of Brightree HME resupply solutions.

During the fiscal third quarter, ResMed closed the Citus Health (a digital health player specializing in patient engagement solutions for home infusion, specialty pharmacy, home health and hospice markets) buyout, which is expected to boost the company’s SaaS portfolio. ResMed also acquired certain business assets of a Korea-based medical company during the same time.

Strong Mask Sales: We are upbeat about ResMed’s strong sales across its mask product portfolio across major geographies over the past few months. ResMed, during its fiscal third-quarter earnings call in April, confirmed witnessing resilience and growth in its mask and accessories sales during the quarter. Further, the company also confirmed recording continued strong ongoing mask and accessory resupply in the United States.

Downsides

Stiff Competition: ResMed’s operation in a highly competitive market for its sleep-disordered breathing products with respect to product price, features and reliability, is concerning. The company faces stiff competition from biggies like Philips BV as well as regional manufacturers. Some of ResMed’s competitors, such as Löwenstein Medical GmbH + Co. KG, are affiliates of its customers. This makes it difficult for the company to compete with them.

Reimbursement Headwind: ResMed’s ability to sell products primarily depends on the extent to which coverage and reimbursement for the same will be available from government health administration authorities, private health insurers and other organizations. These third-party payers are increasingly challenging the prices charged for medical products and services, and can deny coverage for treatments that may include the use of its products.

Estimate Trend

ResMed is witnessing a negative estimate revision trend for 2021. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.9% south to $5.25.

The Zacks Consensus Estimate for the company’s fourth-quarter fiscal 2021 revenues is pegged at $777.4 million, suggesting a 0.9% rise from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Amedisys, Inc. AMED, Boston Scientific Corporation BSX and National Vision Holdings, Inc. EYE.

Amedisys’ long-term earnings growth rate is estimated at 12%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Scientific’s long-term earnings growth rate is estimated at 9.3%. It currently carries a Zacks Rank #2.

National Vision’s long-term earnings growth rate is estimated at 11.8%. It currently sports a Zacks Rank #1.

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