Here's Why Investors Should Retain ResMed (RMD) Stock for Now
ResMed Inc. RMD is gaining investors’ confidence, backed by the strength of digital health solutions. The company remains well-positioned as the leading global strategic provider of SaaS solutions for outside hospital care globally. The company has sufficient liquidity to meet its short-term debt obligations. However, escalated expenses and reimbursement headwinds are concerning for ResMed.
In the past year, this Zacks Rank #3 (Hold) stock has decreased 26.2% compared with the 3.9% decline of the industry and a 6.9% rise of the S&P 500 composite.
The renowned medical device company has a market capitalization of $24.37 billion. RMD has an earnings yield of 4.29% against the industry’s yield of -2%. The company’s earnings surpassed estimates in two of the trailing four quarters, matched the same in one and missed in another quarter. It has an average earnings surprise of 1.64%.
Let’s delve deeper.
Upsides
Strong Potential in Digital Health: RMD’s patient-facing digital health platforms continue to witness strong uptake. The adoption rates of the myAir app by new patients set up on therapy with the AirSense 11 tend to be more than double that of the AirSense 10.
Simultaneously, progress across several digital health technology initiatives appears promising to further the value proposition for the connected healthcare ecosystem. Over the next several quarters, the company plans to introduce several AI-driven data products and capabilities on both the physician and provider-facing AirView platform, as well as the patient-facing myAir app.
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Currently, ResMed is leading the market in digital health technology with more than 15.5 billion nights of medical data in the cloud. The company is increasing investments in this space as it continues to unlock value from those data to benefit patients, providers, physicians and payers.
Strategic Pacts to Boost the SaaS Business: ResMed’s SaaS business for out-of-hospital care remains an integral part of the company’s growth strategy. The Brightree ReSupply program continues to demonstrate strong synergies between SaaS and RMD’s core business, providing resupply for patients with sleep apnea, COPD, neuromuscular disease and beyond.
In the fourth quarter of fiscal 2023, organic revenues across the SaaS business were driven by ongoing strength in the Home Medical Equipment and Infusion segments. The most recent SaaS portfolio addition, MEDIFOX DAN, continues to surpass expectations with another full-quarter contribution.
The company is seeing pent-up demand for technology investments that continue to come to the market across skilled nursing facilities, nursing homes and beyond. This presents opportunities for the business to streamline operations and create workflow efficiencies.
Strong Solvency With Moderate Payout Load: ResMed exited the fourth quarter of fiscal 2023 with cash and cash equivalents of $227.9 million and total debt of $1.43 billion. However, at the quarter end, the company's near-term payable debt level remained pretty low at $9.9 compared to the corresponding cash balance. This reflects strength in the company's solvency position despite challenging times.
Downsides
Mounting Expenses: ResMed missed fiscal fourth-quarter earnings estimates. The adjusted gross margin declined, reflecting increases in component costs and warranty and manufacturing-related costs, as well as product mix shifts due to the significant increase in sleep device sales.
Incremental SG&A expenses were attributed to increases in employee-related cost marketing and travel expenses and expenses associated with the MEDIFOX DAN acquisition. In the quarter, R&D expenses rose 21.5% compared to the last year.
Reimbursement Headwind: ResMed's ability to sell its products largely 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
The Zacks Consensus Estimate for RMD’s fiscal 2024 earnings per share (EPS) has moved down from $7.33 to $7.10 in the past 30 days.
The Zacks Consensus Estimate for the company’s fiscal 2024 revenues is pegged at $4.60 billion, up 8.9% from the year-ago reported figure.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, SiBone SIBN and Quanterix QTRX.
Haemonetics has an earnings yield of 4.29% against the industry’s -2%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 19.39%. Its shares have risen 6.4% against the industry’s 4.3% decline in the past year.
HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SiBone, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 22.9% compared with the industry’s 16.2%. Shares of the company have rallied 23.9% against the industry’s 3.1% decline over the past year.
SIBN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.37%.
Quanterix, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 62.8% for the current year compared with the industry’s 16.3%. Shares of QTRX have risen 106.6% against the industry’s 4.3% decline over the past year.
Quanterix’s earnings surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 30.39%. In the last reported quarter, it posted an earnings surprise of 55.56%.
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ResMed Inc. (RMD) : Free Stock Analysis Report
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