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Here's Why You Should Add ResMed (RMD) in 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 drive the rally. However, downsides may result from the stiff competitive landscape as well as dull device sales.

Over the past year, shares of the Zacks Rank #2 (Buy) company have outperformed its industry. The stock has gained 52.5% against a 5.9% decline of the industry and a 5.5% fall of the S&P 500 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 $22.73 billion. The company projects 14.4% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 8.9%, on average, over the trailing four quarters.

 


 

Let’s delve deeper.

Potential in Digital Health: We are optimistic about ResMed’s focus on digital health technology. Brightree and MatrixCare software systems are significantly contributing to the company’s capabilities of managing more people outside the hospital setting. Given the fact 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.

Efforts to Combat Coronavirus: We are upbeat about ResMed’s efforts to contribute to the fight against the coronavirus pandemic. The company is currently in the process of delivering the ventilation therapy required for treating the respiratory complications of coronavirus infection. Apart from ventilators, ResMed is working toward providing other respiratory support devices for patients.

Strong Q2 Results: ResMed’s better-than-expected results in second-quarter 2020 buoy optimism. The company’s growth at constant exchange rate across both its key operating segments was impressive. Robust geographic revenue improvement was backed by strong performance of ResMed’s mask and device product portfolios in major geographies (excluding Software-as-a-Service or SaaS). Within SaaS, ResMed continues to record positive momentum from its Brightree service portfolio along with an additional contribution from the MatrixCare buyout.

However, despite the upsides, the company witnessed dull device sales in France in the second quarter of fiscal 2020. This resulted from customers completing their connected device upgrade programs. The company expects the impact of the same to persist over the next few quarters.

Another concern for ResMed is the stiff competition that it faces from biggies like Fisher & Paykel Healthcare Corporation Limited as well as regional manufacturers.

Estimate Trend

ResMed is witnessing a positive estimate revision trend for 2020. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 3.2% north to $4.24.

The Zacks Consensus Estimate for the company’s third-quarter fiscal 2020 revenues is pegged at $722.3 million, suggesting a 9.1% rise from the year-ago reported number.

Other Key Picks

Some other top-ranked stocks from the broader medical space are Phibro Animal Health Corporation (PAHC - Free Report) , National Vision Holdings, Inc. (EYE - Free Report) and Surmodics, Inc. (SRDX - Free Report) .

Phibro has a projected long-term earnings growth rate of 2.1%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Vision’s long-term earnings growth rate is estimated at 10.7%. The company presently carries a Zacks Rank #2.

Surmodics’ long-term earnings growth rate is estimated at 10%. It currently carries a Zacks Rank #2.

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