Another record quarter for ResMed boosted this maker of sleep apnea products back to a Zacks #1 Rank this week. In the San Diego-based company's earnings report last week, EPS for the second quarter of FY13 came in at 53 cents, a 4% beat over the analyst consensus.
This is ResMed's 5th consecutive earnings beat and its 15th beat of the last 17 quarters. And investors who were not awake for this story got on board after this report, driving the stock up 5.5% last Friday to new all-time highs above $48.
A Sleeper in Medical Devices
Honestly, I had no idea what this company was about until a few weeks ago when I saw the stock as a big gainer in my colleague Brian Bolan's HomeRun Investor portfolio. He woke up to the growth story in early August of last year after a big earnings beat and jumped on the shares in the mid-30s.
ResMed Inc. (RMD - Analyst Report) is a leading designer, manufacturer and distributor of medical equipment for treating and diagnosing sleep disordered breathing. Sleep disordered breathing includes sleep apnea and related respiratory conditions. The company sells a comprehensive range of diagnostic and treatment devices in countries through a combination of wholly owned subsidiaries and independent distributors.
New Awareness, New Growth
Revenues soared 13% year over year to $376.5 million, a record high for ResMed. Riding on the back of increasing awareness regarding sleep-disordered breathing and a vastly under-penetrated and growing sleep-disorder breathing market, revenues in the Americas surged 16% to $211.8 million whereas revenues outside the Americas increased 10% at $164.7 million. Growth in the overseas market was due to strong contributions from Germany, France, the U.K. and Japan.
As more physicians diagnose sleep-related breathing disorders, the demand for ResMed solutions and diagnostics continues to grow. And the international markets clearly offer some of the biggest growth opportunities ahead for the company.
How the Zacks Rank Picked This Winner
Looking back at the historical Zacks Rank for RMD, it appears the stock has consistently been a #1 Strong Buy or #2 Buy since late 2011. And growth investors recognized this earnings momentum, taking the stock from $24 in December 2011 to a double in 13 months.
To see why the rising earnings estimates made this so, you need only look at the Price & Consensus chart, which plots the shifting earnings consensus for a given year against the stock price.
Attractive, Steady Growth
ResMed's current path of revenue and earnings growth are both in the mid-teens. In the medical products industry group, it trades slightly above peers on a trailing P/E basis at 24X vs. 20X. But its price to sales ratio is 4.8X vs an industry average of 7.7X.
With the recent spike in shares, investors may want to wait and see if they can catch a drift lower that possibly threatens to fill the price gap up from below $46. But be aware that the last big earnings beat which launched the shares from $32 to $36 never saw a "look back" to fill that gap.
With the stock's 50 and 100-day moving averages on a steep ascent down around $42 right now, it is likely shares do spend some time resting below the recent highs. And investors will be watching both the company's sales and the rising public awareness of sleep-related breathing disorders in the run-up to their next report in April.
Kevin Cook is a Senior Stock Strategist with Zacks.com