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Here's Why Investors Should Retain ResMed (RMD) Stock for Now

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ResMed Inc. (RMD - Free Report) is gaining investors’ confidence, backed by the prospect of the company’s digital health solutions. During the fiscal third quarter earnings update, the company provided impressive updates on its top three strategic priorities. Within the respiratory care business, the adoption of bilevel and other non-invasive ventilator solutions continue to drive growth. Yet, escalated expenses and reimbursement headwinds are concerning for the company.

In the past year, this Zacks Rank #3 (Hold) stock has increased 3.7% against the 28.5% decline of the industry and a 8.8% rise of the S&P 500 composite.

The renowned medical device company has a market capitalization of $32.62 billion. RMD has an earnings yield of 2.92% against the industry’s yield of -2.29%. The company’s earnings surpassed estimates in three of the trailing four quarters and matched the same in one quarter, delivering an average surprise of 2.86%.

Let’s delve deeper.


Potential in Digital Health:  Amid the pandemic, ResMed saw increased demand for its digital health solutions globally with the robust adoption of remote patient engagement and population health management. During its earnings call for the fiscal third quarter, ResMed noted that it has over 14.5 billion medical data in the cloud and over 20.5 million cloud-connectable medical devices on bedside tables in 140 countries worldwide.

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During the last 12 months, the company improved over 156 million lives with its device platforms, full mask systems and software solutions in digital health. Meanwhile, the launch and market reaction toward the AirSense 11 device platform has been favorable. ResMed continued to work through some supply chain constraints and expects to steadily improve the global availability of AirSense 11 over the next several quarters.

Progress in Three-Horizon Growth Strategy: ResMed had identified three horizons for future growth — to grow and differentiate core sleep apnea, COPD and asthma businesses; to deliver advanced medical devices as well as globally scalable digital health solutions; and to innovate advanced software solutions for care delivered digitally.

We are impressed to see the strong adoption of the myAir patient app. The company noted that AirSense 11 adoption rates of myAir are more than double the adoption rate of myAir on the AirSense 10 platform. Increasing production and global availability of the AirSense 11 platform remains a top priority for ResMed.

The company is continuously transforming out-of-hospital health care at scale, leading the market in digital health technology across the business. Meanwhile, the strong and sustainable growth of the core SaaS business is encouraging. The reported quarter witnessed high single digit growth in SaaS organic revenues across its portfolio.

COVID-19-Led Critical Care Drives Demand for Products: ResMed continued to drive growth, banking on the strong adoption of bilevel and other non-invasive ventilator solutions globally. The company invested in newer-to-market technologies for patients with neuromuscular disease, COPD and asthma and beyond. During the fiscal third quarter, ResMed announced a pilot collaboration between its digital therapeutics team under the Propellor health brand and the University of California Davis Health System.

The partnership allows eligible UC Davis Health patients to access Propellor’s digital therapeutics platform, including sensors for inhaled medications, a mobile app, a web portal, as well as on-going patient support.


Mounting Expenses: The decline in the fiscal third quarter’s adjusted gross margin is attributed to an unfavorable product mix and higher component costs. Both selling, general and administrative expenses and research and development expenses rose in the quarter, resulting in a contraction in the adjusted operating margin.

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

Estimate Trend

ResMed has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 earnings per share (EPS) has moved from $6.46 to $6.48 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $4.20 billion, up 17.3% from the year-ago reported figure.

Key Picks

Some better-ranked stocks in the broader medical space are Zimmer Biomet (ZBH - Free Report) , Penumbra (PEN - Free Report) and Hologic, Inc. (HOLX - Free Report) .

Zimmer Biomet has an earnings yield of 5.72% against the industry’s yield of -2.29%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 16.6% against the industry’s 28.5% decline in the past year.

ZBH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra, also sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 133.8% compared with the industry’s 5.4% increase over the past year.

PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.92% against the industry’s -6.7%. Shares of HOLX have risen 6.9% compared with the industry’s 5.4% growth over the past year.

Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.

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