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Results: ResMed Inc. Exceeded Expectations And The Consensus Has Updated Its Estimates

Simply Wall St

Last week, you might have seen that ResMed Inc. (NYSE:RMD) released its quarterly result to the market. The early response was not positive, with shares down 2.1% to US$159 in the past week. It looks like a credible result overall - although revenues of US$736m were in line with what analysts predicted, ResMed surprised by delivering a statutory profit of US$1.10 per share, a notable 18% above expectations. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.

Check out our latest analysis for ResMed

NYSE:RMD Past and Future Earnings, February 3rd 2020

After the latest results, the 15 analysts covering ResMed are now predicting revenues of US$2.91b in 2020. If met, this would reflect a modest 4.6% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to bounce 24% to US$3.93. Yet prior to the latest earnings, analysts had been forecasting revenues of US$2.90b and earnings per share (EPS) of US$3.71 in 2020. Analysts seem to have become more bullish on the business, judging by their new earnings per share estimates.

Analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 9.0% to US$156. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. The most optimistic ResMed analyst has a price target of US$182 per share, while the most pessimistic values it at US$109. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await ResMed shareholders.

Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. We would highlight that ResMed's revenue growth is expected to slow, with forecast 4.6% increase next year well below the historical 11%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 7.9% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than ResMed.

The Bottom Line

The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards ResMed following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that ResMed's revenues are expected to perform worse than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for ResMed going out to 2022, and you can see them free on our platform here.

It might also be worth considering whether ResMed's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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