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

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Zacks Equity Research
·4 min read
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ResMed Inc. RMD is gaining from robust segmental and international growth. Strong ventilators and mask sales along with potential in digital health are expected to contribute further. Robust demand for critical care products amid the pandemic is also expected to aid the company. However, stiff competitive and reimbursement headwinds persist.

Over the past year, the Zacks Rank #3 (Hold) stock has outperformed its industry. The stock has gained 34.7% against a 4.4% fall of the industry and a 15.8% rise of the S&P 500.

The renowned designer, manufacturer and distributor of medical devices and cloud-based software solutions to manage respiratory disorders has a market capitalization of $26.55 billion. The company projects 13.9% growth for the next five years and expects to maintain strong segmental performance. Further, it has an earnings surprise of 23.2%, on average, for the trailing four quarters.

Let’s discuss.

Impressive Q4 Results: ResMed’s impressive fourth-quarter fiscal 2020 results buoy optimism. It is encouraging to note that ResMed registered growth at constant exchange rate across both its key operating segments — Total Sleep and Respiratory Care and Software-as-a-Service. The reopening of sleep labs and physician practices across many geographies and robust adoption of digital health solutions look encouraging. Expansion of both margins buoys optimism.

Robust Critical Care Product Demand: ResMed significantly scaled up production of ventilators, masks and other respiratory devices backed by ramped-up demand for its critical care products. In the fiscal fourth quarter, the company produced around 100,000 invasive and non-invasive ventilators, including bi-level positive-pressure ventilators. Per the company, its flagship ventilator — the Astral life-support ventilator — reached a peak of over five times the company’s weekly production rates during the fiscal fourth quarter.

Other notable ventilators currently offered by the company include Astral, Stellar, Lumis, as well as non-invasive ventilators like AirCurve, Flexo and the GA. ResMed noted that the pandemic has led to rapid expansion of its Telehealth services as well.

Potential in Digital Health: We are upbeat about ResMed’s focus on digital health technology. The Brightree and MatrixCare software systems are significantly contributing to the company’s capabilities of managing 90 million more people outside the hospital setting. In this regard, ResMed’s pilot telehealth enables physicians to access information on Air Solutions and AirView as well as directly interact with patients over video chat.

The company launched ResMed MaskSelector, a digital tool for remote-patient mask selection and sizing, in May. Further, in the same month, the company launched a cloud-based remote-monitoring software for ventilators and Lumis bilevel devices across Europe, via its AirView platform to enable remote-patient monitoring.

Downsides

Stiff Competition: ResMed operates in a highly competitive market for its sleep-disordered breathing products with respect to product price, features and reliability. The competition ranges 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 its products 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 positive estimate revision trend for 2021. In the past 60 days, the Zacks Consensus Estimate for its earnings has moved 4.5% north to $4.68.

The Zacks Consensus Estimate for the company’s first-quarter fiscal 2021 revenues is pegged at $702.4 million, which suggests a 3.1% rise from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks from the broader medical space are QIAGEN N.V. QGEN, Thermo Fisher Scientific Inc. TMO and Hologic, Inc. HOLX.

QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently flaunts a Zacks Rank #1. (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 15%. It currently carries a Zacks Rank #2 (Buy).

Hologic’s long-term earnings growth rate is estimated at 15.5%. The company presently sports a Zacks Rank #1.

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