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ResMed (RMD) Hits a 52-Week High: What's Driving the Stock?

Zacks Equity Research

On Dec 16, shares of ResMed RMD scaled a new 52-week high of $156.20, closing the session marginally lower at $156.  In fact, the stock has rallied nearly 22.5% since its first-quarter fiscal 2020 earnings announcement on Oct 24.

Double-digit global revenue growth in the first quarter, led by strong sales in Software-as-a-Service (SaaS) businesses, launch of mask products and devices as well as robust geographic expansion have prompted the rally.

Let us take a closer look at the factors driving growth.

Robust Q1 Earnings

The fiscal first-quarter revenues in the combined EMEA and APAC region witnessed an 8% rise at CER from the year-earlier tally. A massive 83% surge in global SaaS revenues, driven by continued expansion of Brightree offerings and the MatrixCare buyout, has buoyed optimism.

Gross margin for the quarter was 59.5%, translating into a 115-basis point (bps) expansion from the year-ago number. Adjusted operating margin in the reported quarter rose 115 bps to 27.8%.

 

Other Encouraging Factors

Investors are optimistic about the company’s recently-inked collaboration deal with Cerner as a new preferred provider for home health and hospice software. This partnership strengthens ResMed’s position as an industry-leading provider of digital health solutions for out-of-hospital healthcare. In fact, ResMed’s MatrixCare team is steadily progressing toward signing a contract with a major healthcare system.

Market is upbeat about ResMed’s expansion of its AirFit mask portfolio with the introduction of its first top-of-head-connected nasal CPAP mask, AirFit N30i, in the United States. The company’s flagship masks, AirFit F20 in the full-face category and AirFit N20 in the nasal category, witnessed solid momentum across global markets in the first quarter of fiscal 2020. The company’s three most recent mask launches, namely, the F30, the N30i and the P30i, have started contributing to the top line significantly. In October 2019, the company launched its latest innovation, N30 — the world’s first ever tube-down nasal cradle CPAP mask in a new product subcategory (which is being called the minimalist category).

Meanwhile, ResMed has been having a great run on the bourses in the past year. The stock has rallied 39.7%, higher than the broader industry’s growth of 13.4%. The company currently has a market cap of $22.09 billion.

Zacks Rank & Other Stocks Worth a Look

ResMed carries a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks from the broader medical space are Haemonetics Corporation HAE, NuVasive, Inc NUVA and Omnicell OMCL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics has a projected long-term earnings growth rate of 13.5%.

NuVasive has an expected long-term earnings growth rate of 10.9%.

Omnicell has a long-term earnings growth rate of 12.5%.

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