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Analyst Blog

On Aug 25, 2014, we issued an updated research report on ResMed, Inc. (RMD - Analyst Report). ResMed delivered a weak fourth-quarter fiscal 2014 with earnings and revenues both lagging the Zacks Consensus Estimate. However, the still untapped obstructive sleep apnea (OSA) market should catalyze growth in the near term.

In the quarter under review, ResMed reported adjusted earnings per share of 64 cents, which although up 3.2% missed the Zacks Consensus Estimate of 66 cents. Revenues of $415.2 million were up a mere 0.1% but lagged the estimate of $434 million. Revenues were lower than anticipated, primarily due to ongoing headwinds in the U.S. market.

According to the company, changes in the buying behavior of customers coupled with industry rumors regarding the predicted launch of a new ResMed sleep flow generator on Jul 1 hampered growth in the flow generator and mask categories.

However, sales outside the Americas increased 9% year over year. The company continues to benefit from its globally diversified business, with constant currency revenue growth of 5% in combined Europe and Asia-Pacific businesses. Europe, Asia and Rest of world revenues increased on the back of strong respiratory care and cardiology sales. The launch of the Astral life support ventilator in Europe and Asia during the quarter followed by better-than-expected ramp up so far also contributed to growth.

Alongside, ResMed continues to gain from a solid foothold in the huge sleep-disordered breathing (SDB) market. According to the company, several initiatives are now being taken to increase awareness regarding OSA. This has nurtured an improved understanding of the role of SDB treatment in the management of cardiac, neurologic, metabolic and related disorders, and has driven an increase in home-based diagnosis, which in turn, promises a growing share for the company in the SDB market in the near future.

Robust pipeline development also bolsters confidence. Meanwhile, ResMed has been rewarding its shareholders with attractive share repurchases and dividends.

The stock currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Some better-ranked stocks in the broader medical sector that are worth  looking into are ICU Medical, Inc. (ICUI - Snapshot Report), Abaxis, Inc. (ABAX - Analyst Report) and NuVasive, Inc. (NUVA - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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