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Here's Why You Should Hold on to ResMed (RMD) Stock for Now

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ResMed Inc. (RMD - Free Report) has been 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 #3 (Hold) stock has gained 52.9% compared with 60.9% growth of the industry and 76.6% 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 $27.15 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 27.82% for the past four quarters, on average.

Let’s delve deeper.

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 second-quarter fiscal 2021, the company reported strong adoption of mask and accessories resupply programs. 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.

Potential in Digital Health: ResMed’s focus on digital health technology buoys optimism. The company, during the fiscal second quarter, saw improved patient flow with the adoption of new digital health solutions that have enabled clinicians to remotely diagnose, treat and manage a wider patient pool during the pandemic and beyond. ResMed’s partnership with Novartis, entered into during the fiscal first quarter, expanded the reach of the former’s Propeller Health technology.

Other notable digital health offerings of ResMed include ResMed MaskSelector and a cloud-based remote-monitoring software for ventilators and Lumis bilevel devices across Europe, via its AirView platform, to enable remote-patient monitoring.

Strong Q2 Results: ResMed’s robust second-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 looks encouraging. Also, in the quarter, the company reported sequential improvement in new patient volume as well. Expansion of both margins buoys optimism.

Downsides

Stiff Competition: ResMed’s operation in a highly competitive market for its sleep-disordered breathing products with respect to product price, features and reliability, is concerning. 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.

Reimbursement Headwind: ResMed’s ability to sell products primarily depends on the extent to which coverage and reimbursement for the same 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 2.1% north to $5.30.

The Zacks Consensus Estimate for the company’s third-quarter fiscal 2021 revenues is pegged at $781.9 million, which suggests a 1.6% rise from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Hologic, Inc. (HOLX - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Abbott Laboratories (ABT - Free Report) .

Hologic’s long-term earnings growth rate is estimated at 15.4%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX’s long-term earnings growth rate is estimated at 15.8%. It currently carries a Zacks Rank #2.

Abbott’s long-term earnings growth rate is estimated at 14.1%. The company presently carries a Zacks Rank #2.

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