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

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ResMed Inc. (RMD - Free Report) has been gaining from robust segmental and international growth. The company’s focus on core sleep apnea franchise, digital health technology and international markets is expected to further propel the rally.

Over the past year, shares of the Zacks Rank #2 (Buy) company have outperformed its industry. The stock has gained 75.2% compared with 14.5% growth of the industry. Also, the company has outperformed the S&P 500’s 22.1% rally during the same period.

The renowned designer, manufacturer and distributor of medical devices and cloud-based software solutions to manage respiratory disorders, has a market capitalization of $24.26 billion. The company projects 12% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered positive earnings surprise of 8.98%, on average, in the trailing four quarters.


 

Let’s delve deeper.

Q2 Results: We are upbeat about ResMed’s strong second-quarter fiscal 2020 results, which reported better-than-expected numbers. Strong top-line growth was led by year-over-year rise in both its key operating segments — Total Sleep and Respiratory Care, and Software-as-a-Service (or SaaS). The robust geographic revenue improvement backed by strong performance of the company’s mask and device product portfolios in the United States, Canada and Latin America (excluding SaaS) buoys optimism.

Within SaaS, the company recorded continued momentum in the Brightree service portfolio and an additional contribution from the MatrixCare buyout. Global revenues from SaaS also witnessed growth.

Potential in Digital Health: We are upbeat about ResMed’s focus on digital health technology. The Brightree and MatrixCare software systems are significantly contributing to the company’s capabilities of managing 90 million more people outside the hospital setting. Given that digital health technology is an integrator across everything that the company does; AirView, myAir, Propeller and a portfolio of other digital health solutions support its plans of reaching out to more customers and partners.

Partnerships: Within its SaaS portfolio, the company inked a collaboration deal with Cerner as a new preferred provider for home health and hospice software. This partnership strengthens ResMed’s position as an industry-leading provider of digital health solutions for out-of-hospital healthcare. We are upbeat about the partnership progressing well, even though it is in early stage.

Emphasis on Product Development: We are optimistic about ResMed’s focus on product development and innovation to maintain leadership position in the sleep-disordered breathing (SDB) market and to expand its sales base. The company recently expanded its AirFit mask portfolio by introducing the world’s first tube-down nasal cradle CPAP mask with a front-facing tube, AirFit N30, in the United States. Later, it will be available in other countries as well.

Estimate Trend

ResMed is witnessing a positive estimate revision trend for 2020. Over the past 7 days, the Zacks Consensus Estimate for its earnings has moved 5.1% north to $4.29.

The Zacks Consensus Estimate for the company’s fiscal third-quarter 2020 revenues is pegged at $721 million, suggesting an 8.9% rise from the year-ago reported number.

Other Key Picks

Some other top-ranked stocks from the broader medical space are Perrigo Company plc (PRGO - Free Report) , Hill-Rom Holdings, Inc. (HRC - Free Report) and Myomo, Inc. (MYO - Free Report) , each currently carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Perrigo Company has a projected long-term earnings growth rate of 2%.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%.

Myomo’s long-term earnings growth rate is estimated at 25%.

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