ResMed Inc.’s (RMD Quick QuoteRMD - Free Report) robust performance of its Mask business is supported by continued product development within the portfolio. Its Software-as-a-Service (SaaS) business continues to benefit from strategic buyouts. The company’s investment in digital health technology looks poised to drive growth in the upcoming quarters. However, the increasing debt burden and macroeconomic pressures on ResMed’s operations remain a concern.  

In the past year, shares of this Zacks Rank #2 (Buy) company have surged 69.8%, outperforming both the industry’s 32% growth and the S&P 500 composite’s 34.5% rise.

The renowned medical device company has a market capitalization of $35.10 billion. RMD has an earnings yield of 3.8%, outpacing the industry’s 0.9% yield. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 4.5%.  

Let’s delve deeper.

Factors Favoring ResMed

Robust Mask Sales: Continued product development is driving growth within ResMed’s market-leading mask business globally. In fiscal 2024, revenues from Masks and other businesses increased 14% compared to fiscal 2023. The U.S. mask and accessories business continues to witness strong growth, where resupply programs are powered by its digital health ecosystem, including AirView for physicians, Brightree for home care medical equipment providers and myAir for patients. RMD recently introduced its latest generation of masks, the AirFit F40, in the U.S. market. Internationally, the company is focused on developing, launching and scaling its direct outreach and subscription programs.

Strategic Pacts to Boost SaaS Business: The business complements the software and device solutions across the company’s core sleep apnea and respiratory care businesses. ResMed tends to opt for strategic buyouts to boost SaaS revenues. As of the fiscal fourth-quarter end, the SaaS business reflected strong contributions from the MEDIFOX DAN brand in Germany and growth across the Home Medical Equipment (“HME”) SaaS business through the Brightree brand.

The company made significant investments in Brightree, Snap Technologies and all of the digital health technology brands to support HME providers in the U.S. market. ResMed expects to have sustainable organic growth across its portfolio of SaaS solutions in home medical equipment, home health, home nursing and beyond. RMD continues to drive operating expense leverage through the management of capabilities for cloud computing, cybersecurity, interoperability, privacy and R&D across its go-to-market brands, including Brightree and MEDIFOX DAN.

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Potential in Digital Health:The company’s two key global customer-facing software products — AirView and myAir — are 100% in the cloud. Currently, ResMed is investing in a portfolio of artificial intelligence-driven capabilities, as well as customer-facing AI products in its ecosystem. The company has continued to roll out these products in its AirView ecosystem, such as Compliance Coach in the United States.

In the coming quarters, the company will be introducing several new artificial intelligence-driven coaching features in the AirView system. These AI-driven data products will provide personalized suggestions to increase patient therapy adherence and improve patient outcomes. The company is pleased to see that the early testing feedback in both customer groups has been positive.

Downsides for RMD

Escalating Debt Level: The company’s high debt level is a concern. As of June 31, 2024, long-term debt was $697.3 million, while cash and cash equivalents totaled only $238.4 million. A higher debt level induces higher interest payments, which comes with the risk of failure to pay the same.

Challenging Macroeconomic Scenario: Global macroeconomic conditions, primarily headwinds arising from the Middle East conflict, as well as adverse currency fluctuations, could continue to affect ResMed’s results of operations. A decline in the global economic environment may reduce demand for the company’s products, resulting in lower sales, lower product prices and reduced reimbursement rates by third-party payers while increasing the cost of operating the business.

RMD Stock Estimate Trend

The Zacks Consensus Estimate for RMD’s fiscal 2025 earnings per share (EPS) has increased 1.1% to $9.02 in the past 30 days.

The Zacks Consensus Estimate for the company’s fiscal 2025 revenues is pegged at $5.03 billion, up 7.4% from the year-ago reported figure.

Other Top Key Picks

Some other top-ranked stocks in the broader medical space are Phibro Animal Health (PAHC Quick QuotePAHC - Free Report) , Haemonetics (HAE Quick QuoteHAE - Free Report) and Boston Scientific (BSX Quick QuoteBSX - Free Report) . While Phibro Animal Health sports a Zacks Rank #1 (Strong Buy), Haemonetics and Boston Scientific each carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Phibro Animal Health’s earnings are expected to increase 31.9% in fiscal 2025. Its shares have surged 109% compared with the industry’s 32% growth in the past year. PAHC’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed in one, the average surprise being 4.1%

Haemonetics has an estimated fiscal 2025 earnings growth rate of 15.4% compared with the industry’s 11.7% growth. Shares of the company have declined 16.8% against the industry’s 32% growth in the past year. HAE’s earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 3.5%.

Boston Scientific has an estimated 2024 earnings growth rate of 17.1% compared with the industry’s 11.7%. Shares of the company have surged 72.5% compared with the industry’s 32% growth in the past year. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.2%.