ResMed Inc. RMD is gaining from the continued uptake of its sleep and respiratory care devices. The company posted better-than-expected results for the fourth quarter of fiscal 2022. The robust sales performance in the Software as a Service (SaaS) segment is impressive. However, mounting operating costs and macroeconomic headwinds raise apprehensions.
In the past year, the Zacks Rank #3 (Hold) stock has lost 23.7% compared with a 50.4% fall of the industry and a 12.4% decline of the S&P 500.
The renowned medical device company has a market capitalization of $32.31 billion. Its earnings for the fourth quarter of fiscal 2022 surpassed the Zacks Consensus Estimate by 0.7%.
In the past five years, the company registered earnings growth of 13.9% as compared to the industry’s 9.7% rise and the S&P 500’s 13.4% increase. The company’s long-term expected growth rate of 10.6% compares with the industry’s long-term growth expectation of 13.6% and the S&P 500’s estimated 11.4% rise.
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Let’s delve deeper.
Factors At Play
Q4 Upsides: ResMed exited the fiscal fourth quarter with better-than-expected earnings and revenues. The company recorded robust sales performance on increased demand for sleep and respiratory care devices. Revenue growth across several geographies is impressive. The growing adoption of ResMed’s AirSense 11 and AirSense 10 platforms raises investors’ confidence. The continued uptake of core noninvasive ventilation and life support ventilation solutions for COPD and neuromuscular disease is encouraging too. The expansion in gross margin adds to the upsides.
SaaS Business Grows: ResMed is a major strategic provider of SaaS solutions for out-of-hospital care. In the fiscal fourth quarter, the business registered revenue growth of 8% at CER globally. The upside was driven by continued growth in the Durable Medical Equipment category and stabilizing patient flow in out-of-hospital care settings. The company also saw high-single-digit growth across home medical equipment and facility-based and home-based care settings.
ResMed has been opting for strategic buyouts to boost the revenues from the SaaS business. In June 2022, the company acquired MEDIFOX DAN—a German-based leading provider of end-to-end software solutions for home health and for nursing home providers.
Recovery in Device Sales: We are upbeat about ResMed’s growing device sales. During the fiscal fourth quarter, the company recorded an 11% year-over-year increase in device sales in the United States, Canada and Latin-America region, benefiting from incremental revenues from a competitor's recall. Furthermore, device sales increased 2% year over year and 6% at CER on a global basis. Recently, the company introduced the AirSense 10 Card-to-Cloud solution to address the needs of an industry crisis in PAP supply. The company expects the new device, along with the AirSense 11 and AirSense 10 device, to support solid growth throughout fiscal 2023.
Rising Costs: In the fiscal fourth quarter, ResMed’s selling, general and administrative expenses rose 7.4%, whereas research and development expenses increased 7.4% year over year. These mounting expenses led to an adjusted operating margin contraction of 24 bps year over year to 29.5%, denting the company’s bottom line.
Macroeconomic Challenges: The supply-chain crisis, caused by a product recall by one of ResMed's closest competitors, has imposed restrictions on its access to critical electronic components, especially semiconductor chips. In addition, the volatility surrounding COVID-related restrictions across the globe also continues to pose challenges.
Competitive Landscape: The market for sleep-disordered breathing (SDB) products is highly competitive with respect to product price, features and reliability. The disparity between the company's resources and those of its competitors may increase due to consolidation in the healthcare industry.
Over the past 30 days, the Zacks Consensus Estimate for ResMed’s fiscal 2023 earnings has moved down to $6.57 by 0.6%.
The Zacks Consensus Estimate for its fiscal 2023 revenues is pegged at $3.95 billion, suggesting a10.3% rise from the 2022 comparable figure.
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, Patterson Companies, Inc. PDCO and McKesson Corporation MCK.
AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has lost 7.9% against the industry’s 35.2% fall.
Patterson Companies has an estimated long-term growth rate of 7.9%. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%. It currently flaunts a Zacks Rank #2 (Buy).
Patterson Companies has outperformed its industry in the past year. PDCO lost 5.3% compared with the industry’s 12.1% fall in the past year.
McKesson has an estimated long-term growth rate of 9.9%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2.
McKesson has outperformed its industry in the past year. MCK has gained 80.4% against the industry’s 12.1% fall.
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