Here's Why You Should Retain ResMed (RMD) Stock for Now
Investors are optimistic about ResMed (RMD) given its better-than-expected results and robust SaaS business performance in the fiscal first quarter.
ResMed Inc. RMD is gaining from strength in the Software-as-a-Service (SaaS) business and a robust product line. The company ended the first quarter of fiscal 2022 with better-than-expected results. The newly-launched AirSense 11 buoys optimism. Strong uptake of the company’s products is another positive. However, escalating costs and macroeconomic headwinds raise apprehension.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 21.6% against the 3.4% decline of the industry and the 29.9% rise of the S&P 500.
The renowned medical device company has a market capitalization of $37.16 billion. Its earnings per share (EPS) for the first quarter of fiscal 2022 surpassed the Zacks Consensus Estimate by 11.9%.
Over the past five years, the company’s earnings grew 14.5%, way ahead of the industry’s 7.3% rise and the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 15.8% for earnings compares with the industry’s long-term growth expectation of 17.5% and the S&P 500’s estimated 11.7% rise.
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Let’s delve deeper.
Factors At Play
Q1 Upsides: ResMed reported better-than-expected earnings and revenues in the first quarter of fiscal 2022. The company saw higher demand for sleep devices and masks in the reported quarter on an ongoing rebound in core sleep patient flow as well as increased demand following a recent product recall by one of its rivals. Potential in digital health and strategic alliances entered into by ResMed also look encouraging.
SaaS Business Grows: During the fiscal first quarter, SaaS revenues grew 5.9% on continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings. Meanwhile, global revenues from SaaS represented a 6% increase at CER year over year. ResMed’s home medical equipment and home health products continued to benefit from growth in home-based care in the quarter under review. Further, increased adoption of ResMed’s software and data solutions, including Brightree and Snap ReSupply, contributed to growth.
Product Development: We are encouraged by ResMed’s continued efforts toward product development and innovation to maintain its leadership position in the sleep-disordered breathing (SDB) market and to expand its sales base. In August 2021, ResMed launched its next-generation PAP device, AirSense 11, to enable patients to begin and maintain treatment for obstructive sleep apnea. During the third quarter, the company also saw continued robust adoption of both AirSense 10 and the AirSense 11 platforms as well as the AirView for ventilation software solution. Earlier in 2021, ResMed had introduced its first tube-up full-face CPAP mask AirFit F30i.
Escalating Costs & Expenses: During the fiscal first quarter, ResMed witnessed a 28.3% uptick in cost of sales (excluding expenses related to amortization of acquired intangibles and restructuring). Moreover, selling, general and administrative expenses climbed 11.2% year over year, while research and development expenses increased 9.9%. These escalating costs and expenses are building pressure on the bottom line.
Macroeconomic Woes: 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, limiting its net production output. In addition, the company continues to experience ongoing challenges associated with seafreight and airfreight from manufacturing facilities to distribution warehouses and finally, customers.
Reimbursement Headwind: ResMed's ability to sell its products largely depends on the extent to which coverage and reimbursement for its products 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.
Over the past 90 days, the Zacks Consensus Estimate for ResMed’s earnings for fiscal 2022 has moved north by 0.3% to $6.20.
The Zacks Consensus Estimate for its second-quarter fiscal 2022 revenues is pegged at $922.6 million, suggesting a 15.3% rise from the year-ago reported number.
AMN Healthcare, carrying a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 19.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 72.3% against the industry’s 49.6% fall.
Varex, sporting a Zacks Rank #1, has a long-term earnings growth rate of 5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 115.3%.
Varex has outperformed the industry it belongs to in the past year. VREX has gained 82% versus the industry’s 3.3% fall.
Omnicell, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 16%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 17.4%, on average.
Omnicell has outperformed its industry over the past year. OMCL has gained 68.7% against the 38.5% industry decline.
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