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Here's Why You Should Add ResMed (RMD) to Your Portfolio

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ResMed Inc. (RMD - Free Report) is gaining from robust segmental and international growth. Solid ventilator and mask sales along with a strong product portfolio are expected to contribute further. ResMed’s focus on digital health technology amid the pandemic is also expected to aid the company. However, stiff competition and reimbursement headwinds persist.

Over the past year, this Zacks Rank #2 (Buy) stock has gained 36.6% compared with 1.6% growth of the industry and 15.5% rise of the S&P 500 composite.

The renowned designer, manufacturer and distributor of medical devices and cloud-based software solutions to manage respiratory disorders has a market capitalization of $29.86 billion. The company projects 14.5% growth for the next five years and expects to maintain strong segmental performance. Further, it has delivered an earnings surprise of 28.88% for the past four quarters, on average.

Let’s delve deeper.

Strong Q1 Results: ResMed’s robust first-quarter fiscal 2021 results buoy optimism. It is encouraging to note that the company registered growth at a constant exchange rate in both key operating segments — Total Sleep and Respiratory Care, and Software-as-a-Service. The reopening of sleep labs and physician practices across many geographies and the robust adoption of digital health solutions look encouraging. Also, in the quarter, the company reported sequential improvement in new patient volume as well. Expansion of both margins buoys optimism.

Robust Critical Care Product Demand: We are optimistic about ResMed significantly scaling up its production of ventilators, masks and other respiratory devices, backed by ramped-up demand for its critical care products. In fiscal first quarter, the company reported strong adoption of mask and accessories resupply programs. ResMed saw significantly ramped-up demand for its critical care products during fiscal first quarter. This is likely to continue even in the post-pandemic situation as some patients who have recovered from the coronavirus infection may suffer from lung damage, thus requiring long-term ventilator support.

Other notable ventilators currently offered by the company include Astral, Stellar, Lumis, as well as non-invasive ventilators like AirCurve, Flexo and the GA. ResMed noted that the pandemic has led to the rapid expansion of its Telehealth services as well.

Potential in Digital Health: ResMed’s focus on digital health technology buoys optimism. The company, during its earnings release in October, confirmed the launch of new digital health solutions to enable clinicians to remotely diagnose, treat and manage sleep apnea, Chronic Obstructive Pulmonary Disease and asthma patients during the pandemic and beyond. Further, ResMed's pilot telehealth enables physicians to access information on Air Solutions and AirView, as well as directly interact with patients over video chat.

The company launched ResMed MaskSelector, a digital tool for remote-patient mask selection and sizing, in May. Further in the same month, the company launched a cloud-based remote-monitoring software for ventilators and Lumis bilevel devices across Europe, via its AirView platform to enable remote-patient monitoring.

However, downsides might result from ResMed’s operation in a highly competitive market for its sleep-disordered breathing products with respect to product price, features and reliability. The company faces stiff competition from biggies like Philips BV as well as regional manufacturers. Some of ResMed’s competitors, such as Löwenstein Medical GmbH + Co. KG, are affiliates of its customers. This makes it difficult for the company to compete with them.

ResMed’s ability to sell products primarily 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.

Estimate Trend

ResMed is witnessing a positive estimate revision trend for 2021. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 7.6% north to $5.09.

The Zacks Consensus Estimate for the company’s second-quarter fiscal 2021 revenues is pegged at $768.9 million, which suggests a 4.5% rise from the year-ago quarter’s reported number.

Key Picks

A few other top-ranked stocks from the broader medical space are Hologic, Inc. (HOLX - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .

Hologic’s long-term earnings growth rate is estimated at 17.4%. The company presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 18%. It currently carries a Zacks Rank #2.

Align Technology’s long-term earnings growth rate is estimated at 18.3%. It currently carries a Zacks Rank #2.

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