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Here's Why You Should Hold on to ResMed (RMD) Stock for Now

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ResMed Inc. (RMD - Free Report) has been gaining from robust segmental and international growth. The company’s strength in ventilators and mask sales, digital health technology and international markets is expected to contribute further. However, stiff competitive and reimbursement headwinds remain.

Over the past year, the Zacks Rank #3 (Hold) stock has outperformed its industry. The stock has gained 49.2% compared with 2% growth of the industry and a 3.9% rise of the S&P 500.

The renowned designer, manufacturer and distributor of medical devices and cloud-based software solutions to manage respiratory disorders has a market capitalization of $24.18 billion. The company projects 14% growth for the next five years and expects to maintain strong segmental performance. Further, it has a positive earnings surprise of 14.7%, on average, for the trailing four quarters.


 

Let’s delve deeper.

Strong Q3 Results: ResMed’s better-than-expected results in third-quarter of fiscal 2020 buoy optimism. The company’s growth at constant exchange rate across both its key operating segments was impressive. Geographic revenue growth was driven by robust performance of its mask and device product portfolios on increased demand for ventilators and ventilator masks.

Continued momentum in the Brightree service portfolio and additional contribution from the MatrixCare buyout boosted global revenues from SaaS in the quarter under review.

Robust Demand for Critical Care Products: ResMed saw significantly ramped-up demand for its critical care products during the third quarter and has responded by scaling up production of ventilators, masks and other respiratory devices since March.

It is also witnessing increased demand for ventilators such as Astral, Stellar, Lumis as well as non-invasive ventilators like AirCurve, Flexo and the GA across geographies. A cloud-based remote monitoring software for ventilators and Lumis bilevel devices was recently launched across Europe via its AirView platform.

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.

Downsides

Stiff Competition: ResMed operates in a highly competitive market for its sleep-disordered breathing (SDB) products with respect to product price, features and reliability. The competition ranges from biggies like Philips BV as well as regional manufacturers. Some of ResMed’s competitors, such as Löwenstein Medical GmbH + Co. KG, are affiliates of its customers. This makes it difficult for ResMed to compete with them.

Reimbursement Headwind: ResMed’s ability to sell 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 2020. Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 4% north to $4.41.

The Zacks Consensus Estimate for the company’s fourth-quarter fiscal 2020 revenues is pegged at $710.9 million, suggesting a 0.9% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Aphria Inc. (APHA - Free Report) , Surmodics, Inc. (SRDX - Free Report) and Owens Minor, Inc. (OMI - Free Report) .

Aphria has a projected long-term earnings growth rate of 24.6%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Surmodics’ long-term earnings growth rate is projected at 10%. The company presently sports a Zacks Rank #1.

Owens Minor’s long-term earnings growth rate is estimated at 8.3%. It currently carries a Zacks Rank #2.

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Owens Minor, Inc. (OMI) - free report >>

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ResMed Inc. (RMD) - free report >>

Aphria Inc. (APHA) - free report >>