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Shares of ResMed Inc. RMD reached a new 52-week high of $280.36 on Aug 16, before closing the session marginally lower at $280.24.
Shares of the company have gained 53.1% in the past year compared with the industry’s 10.5% growth and the S&P 500's 33.8% rise.
The company is witnessing an upward trend in its stock price, prompted by its potential in digital health. ResMed’s solid performance in fourth-quarter fiscal 2021 and its strong emphasis on product development buoy optimism. However, reimbursement headwind and a competitive landscape are major downsides.
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Let's delve deeper.
Key Growth Drivers
Strong Q4 Results: ResMed’s better-than-expected results in fourth-quarter fiscal 2021 buoy optimism. The increasing adoption of tools to aid remote care amid the pandemic looks encouraging. In the reported quarter, the company witnessed improved demand for sleep devices and masks, including recovery of core sleep patient flow, along with increased demand following a recent product recall by one of ResMed’s competitors. The uptick in Software-as-a-Service revenues was driven by continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings. Strategic alliances entered into by ResMed also look encouraging. Increased focus on international markets and a robust product line are added benefits.
Potential in Digital Health: ResMed’s focus on digital health technology is encouraging. The Brightree and MatrixCare software systems are significantly contributing to the company's capabilities of managing 90 million more people outside the hospital setting. In the pandemic phase, the company’s investments in research and development for digital health have accelerated on increasing demand from patients, physicians, healthcare providers as well as healthcare systems as they are getting more and more dependent on digital health through remote patient engagement, as well as population health management technology.
In the fiscal fourth quarter, ResMed saw increased demand for its digital health solutions globally, with the robust adoption of remote patient engagement and population health management. Recently, the company upgraded the patient engagement tool — myAir. This app is now cloud-native and serverless in the cloud. The new myAir 2.0 release supports the next-generation platform, AirSense 11.
Strong Emphasis on Product Development: ResMed’s focus on product development and innovation raises investors’ optimism. In April, the company started a limited controlled product launch of the AirSense 11 in certain parts of the United States. ResMed also stated that it is continuing to register robust adoption of its AirView for ventilation software solution.
ResMed had introduced its first tube-up full-face continuous positive airway pressure ("CPAP") mask, AirFit F30i, in January, thus completing its full-face mask portfolio in the market. The company expanded its AirFit mask portfolio with the introduction of the world's first tube-down nasal cradle CPAP mask with a front-facing tube, AirFit N30, in the United States.
The company is also progressing well with its flagship masks — the AirFit F20, the AirFit N20 and AirFit N30. Another notable product from ResMed includes its first CPAP nasal mask with a memory foam cushion, the AirTouch N20.
Reimbursement Headwind: ResMed's ability to sell its products largely depends on the extent to which coverage and reimbursement for the same 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.
Competitive Landscape: The market for sleep-disordered breathing products is highly competitive with respect to product price, features and reliability. ResMed's primary competitors include both renowned players and regional manufacturers. The disparity between the company's resources and those of its competitors may increase owing to the trend of consolidation in the healthcare industry. Moreover, some of ResMed's competitors, such as Löwenstein Medical GmbH + Co. KG, are affiliates of its customers, which may make it difficult for the company to compete with them.
Zacks Rank & Key Picks
Currently, ResMed carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical space are Henry Schein, Inc. HSIC, IDEXX Laboratories, Inc. IDXX and Intuitive Surgical, Inc. ISRG.
Henry Schein’s long-term earnings growth rate is estimated at 13.9%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
IDEXX’s long-term earnings growth rate is estimated at 19.9%. It currently has a Zacks Rank #2.
Intuitive Surgical’s long-term earnings growth rate is estimated at 9.7%. It currently carries a Zacks Rank #2.
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