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Here's Why You Should Retain 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 strength in the international markets. The company’s mask product portfolio registered strong sales growth in the fourth quarter of fiscal 2021. ResMed’s continued efforts to drive innovation in the sleep-disordered breathing (SDB) market also buoy optimism. However, escalating costs and macroeconomic woes do not bode well.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 50.1% versus 2.9% growth of the industry and the 28.9% rise of the S&P 500.

The renowned medical device company has a market capitalization of $37.32 billion. Its earnings per share for the fourth quarter of fiscal 2021 surpassed the Zacks Consensus Estimate by 8%.

Over the past five years, the company’s earnings grew 14.5%, way ahead of the industry’s 6.2% rise and the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 15% for earnings compares with the industry’s long-term growth expectation of 16.5% and the S&P 500’s estimated 11.3% rise.

Zacks Investment Research
Zacks Investment Research

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Let’s delve deeper.

Factors At Play

International Growth: ResMed continues to invest and expand in high-growth markets like China, South Korea, India, Brazil and other countries in Eastern Europe. The company is implementing long-term strategies to improve the quality of patient life to deliver better patient outcomes and reduce overall system healthcare costs within each country. In the fourth quarter of fiscal 2021, ResMed’s global revenues improved 10% at CER while revenues from the United States, Canada and Latin America improved 18% from the prior-year period. Further, Germany’s reimbursement approval for mandibular repositioning device, which includes RedMed’s digital 3D printed dental sleep apnea product called Narval, appears promising.

Strong Sales of Mask Products: We are upbeat about ResMed’s mask product portfolio, which registered strong sales growth across the United States, Canada and Latin America, by growing 5%. In the combined Europe, Asia and other markets, the uptick was 36% on a reported basis. Globally, masks and other sales increased 10% at CER. Excluding the impact of COVID-related sales in the year-ago quarter, global masks and other sales rose 16% at CER. During its fiscal fourth-quarter earnings call, ResMed confirmed witnessing resilience and growth in its mask and accessories sales.

Product Development: ResMed’s continued focus on product development and innovation to maintain its leadership position in the SDB market and expand its sales base raises optimism. In April, the company started a limited controlled product launch of the AirSense 11 in certain parts of the United States. In January, ResMed introduced its first tube-up full-face CPAP mask AirFit F30i, thus completing its full-face mask portfolio in the market. ResMed also expanded its AirFit mask portfolio with the U.S. introduction of AirFit N30, the world's first tube-down nasal cradle CPAP mask with a front-facing tube. This product is expected to be available in other countries later.

Downsides

Escalating Costs: ResMed registered an uptick of 21.2% in cost of sales (excluding expenses related to amortization of acquired intangibles and restructuring) in the fiscal fourth quarter. The company’s selling, general and administrative expenses climbed 9.7% year over year (up 4% at CER), while research and development expenses increased 14%. These escalating costs are building pressure on the bottom line for ResMed.

Competitive Landscape: The market for SDB products is highly competitive concerning product price, features and reliability. ResMed faces significant competition from regional manufacturers and notable companies like Philips BV, among others. The disparity between the company's resources and those of its competitors may increase due to consolidation in the healthcare industry.

Challenging Macroeconomic Scenario: Pricing pressure in the United States and Europe has been a staggering issue for ResMed over the past few quarters. Currency headwinds continue to affect the company’s sales overseas. Moreover, the overall macro-economic uncertainty across the globe affects physician office visits, thereby impacting ResMed's progress.

Estimate Trend

Over the past 90 days, the Zacks Consensus Estimate for ResMed’s earnings has moved north by 11.9% to $6.26.

The Zacks Consensus Estimate for its first-quarter fiscal 2022 revenues is pegged at $859.8 million, suggesting a 14.34% decline from the year-ago reported number.

Key Picks

A few better-ranked stocks from the broader medical space include West Pharmaceutical Services, Inc. WST, AMN Healthcare Services Inc AMN and Alcon Inc. ALC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

West Pharmaceutical has a long-term earnings growth rate of 27.3%.

AMN Healthcare has a long-term earnings growth rate of 10.5%.

Alcon has a long-term earnings growth rate of 17.7%.


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