Here's Why Investors Should Retain ResMed (RMD) Stock for Now
ResMed Inc. RMD is well-poised for growth in the coming quarters, backed by the strength of the SaaS (Software-as-a-Service) business. It is progressing across several digital health technology initiatives further to increase the value proposition for its connected healthcare ecosystem. Further, its performance across the international markets also garners appreciation.
However, global economic uncertainties, as well as competitive disadvantages, may pose challenges to the company’s results of operations.
In the past year, this Zacks Rank #3 (Hold) stock has decreased 26.9% compared with the 8.1% decline of the industry and a 15.2% rise of the S&P 500 composite.
The renowned medical device company has a market capitalization of $23.96 billion. RMD has an earnings yield of 4.46% against the industry’s yield of -1.80%. The company’s earnings surpassed estimates in three of the trailing four quarters and missed in another. It has an average earnings surprise of 1.80%.
Let’s delve deeper.
Upsides
Strategic Pacts to Boost SaaS Business: The business is considered an essential part of ResMed’s growth strategy, complementing the software and device solutions across the company’s core sleep apnea and respiratory care businesses. The most recent addition to the portfolio, MEDIFOX DAN, continues to surpass the company’s initial expectations with an accelerated contribution.
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Meanwhile, the Home Medical Equipment (“HME”) SaaS business under the Brightree brand is growing at a very rapid pace. The sustained high single-digit organic growth in the SaaS business is driven by strength in the HME segment and stability as well as increased tech adoption by customers in the facilities segment. Further, ResMed’s recent acquisition of Somnoware complements its current ecosystem of software solutions, including AirView for providers and physicians and Brightree for home care providers.
Potential in Digital Health: ResMed is leading the market in digital health technology, with more than 16 billion nights of medical data in the cloud and nearly 22.5 million cloud-connectable medical devices on people's bedside tables in 140 countries worldwide. The company is liberating this data to the cloud, unlocking value for patients, providers, physicians, payers and entire healthcare systems.
Further, ResMed’s key global customer-facing software products — AirView and myAir — are 100% in the cloud. In the coming quarters, the company is introducing several artificial intelligence-driven coaching features in the AirView system and on the myAir app that will provide personalized suggestions to increase patient therapy adherence and ultimately improve patient outcomes.
Increased Focus on International Markets: ResMed continues to invest and expand its presence in high-growth markets like China, South Korea, India, Brazil and many countries in Eastern Europe. Across Europe, Asia and other markets, device organic sales have been benefiting from the strong demand and continued availability of AS10 and AS11 cloud-connected devices.
In Europe, Asia and other markets, device sales increased by 20% in constant currency terms in the fiscal first quarter of 2024, reflecting strong demand and significantly improved availability of cloud-connected devices. There are huge opportunities for greater adoption of digital health technologies worldwide, with more than 2 billion people suffering from sleep apnea, COPD and asthma combined.
Downsides
Macroeconomic Challenges: Global macroeconomic conditions, including supply chain disruptions, fluctuations in foreign currency exchange rates and volatility in capital markets, could continue to affect ResMed’s operations results adversely. Decline in the global economic environment may reduce demand for the company’s products, resulting in lower sales, lower product prices and reduced reimbursement rates by third-party payers while increasing the cost of operating the business.
Furthermore, with the sustained inflationary pressures in the future, the company may struggle to keep in check its operating expenses as a percentage of net revenues. We are worried that this might adversely dent ResMed’s profitability.
Competitive Landscape: The market for SDB (sleep-disordered breathing) products is highly competitive with respect to product price, features and reliability. ResMed's primary competitors include Philips BV, DeVilbiss Healthcare, Fisher & Paykel Healthcare Corporation Limited and regional manufacturers, among others. The disparity between the company's resources and those of its competitors may increase due to consolidation in the healthcare industry.
Estimate Trend
The Zacks Consensus Estimate for RMD’s fiscal 2024 earnings per share (EPS) has moved down from $7.30 to $7.26 in the past seven days.
The Zacks Consensus Estimate for the company’s fiscal 2024 revenues is pegged at $4.68 billion, up 10.9% from the year-ago reported figure.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, Insulet PODD and DexCom DXCM.
Haemonetics has an estimated earnings growth rate of 28.4% for fiscal 2024 compared with the industry’s 15.3%. HAE’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 16.1%. Its shares have declined 5.1% compared with the industry’s 6.5% fall 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.
Insulet, sporting a Zacks Rank #1 at present, has a long-term estimated earnings growth rate of 39.2% compared with the industry’s 11.7%. Shares of the company have lost 38.6% compared with the industry’s 6.5% decline over the past year.
PODD’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.5%.
DexCom, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 33.6% compared with the industry’s 13.8%. Shares of DXCM have lost 1.5% compared to the industry’s 9.1% decline over the past year.
DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%. In the last reported quarter, it delivered an average earnings surprise of 47.1%.
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ResMed Inc. (RMD) : Free Stock Analysis Report
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