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Can ResMed (RMD) Repeat Stable Device Growth in Q3 Earnings?

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ResMed Inc. (RMD - Free Report) is slated to report third-quarter fiscal 2018 results after market close on Apr 26. Last quarter, the company delivered a positive earnings surprise of 28.2%. Moreover, the company surpassed estimates in all the trailing four quarters with an average beat of 8.6%.

Let's see, how things are shaping up for this announcement.

Key Catalysts

ResMed is expected to gain from a strong performance on the domestic as well as international front like the previous quarter. In the past few earnings, the company’s domestic revenues were driven by solid growth in devices and masks as well as a continued double-digit software sales rise. Moreover, the sleep apnea patient volume consistently witnessed steady growth. We expect these trends to find reflection in the impending third-quarter results as well.

Internationally, revenues across Europe, Asia and other markets are likely to register a solid increase, banking on a strong device and masks performance. Within devices, sleep apnea patient volume should continue to expand through the company’s marketing efforts and channel partners. In Canada and Latin America, a sturdy uptake of AirSense 10 device platform and the Air Solutions cloud-based software platform should further add value to the company’s portfolio.

ResMed Inc. Price and EPS Surprise

ResMed Inc. Price and EPS Surprise | ResMed Inc. Quote

 

In France, the company’s receipt of French reimbursement approval for telemonitoring buoys optimism in the stock. The company believes, this reimbursement grant will continue to drive the uptake of Air Solutions ecosystem including the AirSense 10 and the AirCurve 10 device platforms as well as AirView and myAir software platforms in the to-be-reported quarter. Moreover, the company keeps investing and expanding its footprint in the high-growth markets of China, South Korea, India, Brazil and several countries in Eastern Europe.

Within mask and accessories outside the United States, the company is expected to benefit from nasal and full face categories, namely AirFit N20 and the AirFit F20, respectively.

Per ResMed, with more than 1.5 billion nights of medical sleep and medical respiratory care data, the company is successfully working on simplifying workflow and improving patient outcomes. This improvement should drive the company’s top-line performance in the quarter, yet to be reported.The Zacks Consensus Estimate of $217 million for international revenues indicates a rise of 19.2% from the year-ago quarter.

Domestically, ResMed is extremely upbeat about the latest tax reform, which sees a transformation into a territorial tax system. This  in fact allows the company to invest its global cash assets without any artificial constraints. Per ResMed, it is now free to invest in three new ways: firstly, growing upon its existing strong U.S. manufacturing footprint; secondly, expanding its existing U.S.-based research and development capability and finally, building upon its existing valuable U.S.-based intellectual property assets. Effective January, this is expected to remain accretive to the company’s operational result in the fiscal third quarter.

The Zacks Consensus Estimate of $366 million for domestic revenues (including contributions from Brightree) reflects an increase of 10.2% from the year-ago quarter.

Other Factors Likely to Influence ResMed's Q3

ResMed continues to progress on the back of its three-pronged growth strategy. In this regard, the company diligently aims at growth in the adjacent product and geographic markets including homecare ventilation for Chronic Obstructive Pulmonary Disease (COPD), Amyotrophic Lateral Sclerosis (ALS) and other respiratory disorders as well as the emerging markets of China, India and Brazil. ResMed still considers portable oxygen concentrators (POCs) an important addition to its menu of respiratory care products.

Moreover, since ResMed’s acquisition of Brightree in fiscal 2016, the former has strongly progressed with the latter’s software-as-a-service business’ latest offerings targeting the home health and hospice market. We expect this upside to further boost ResMed’s top line in the third quarter. The Zacks Consensus Estimate of $39.7 million for Brightree revenues marks an increase of 13.4% from the year-ago quarter.

Here’s what the quantitative model predicts:

Per the proven Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP.

ResMed has a Zacks Rank #2, which increases the predictive power of ESP. However, an Earnings ESP of +0.00% makes surprise prediction difficult. Thus, the combination does not suggest that the company is likely to beat on earnings this quarter.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a few medical stocks worth considering with the right combination of elements to beat estimates this time around.

Align Technology, Inc. (ALGN - Free Report) has an Earnings ESP of +0.97% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Laboratory Corporation of America Holdings (LH - Free Report) has an Earnings ESP of +1.52% and is a Zacks #2 Ranked player.

Quest Diagnostics Incorporated (DGX - Free Report) has an Earnings ESP of +0.57% and a Zacks Rank #2.

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