ResMed Shares Climb 10% with Strong Q3 Results

World-leading connected health company ResMed Inc [ASX:RMD] is a frontrunner in today’s trading, with their shares up 10.4% at time of writing, to $16.34 per share.

ResMed specialise in cloud-connected health products for people suffering from sleep apnoea, COPD (a lung disease) and other chronic diseases. While their core business resides in mask and airflow generators, they are delving deeper into the digital health and software-as-a-service sectors.

Today’s surge is no doubt due to impressive third quarter results, which were highlighted in an update on the ASX this morning.

Profitable quarter, and a profitable future

Highlights from the Q3 FY19 report include year-on-year revenue growth of 12% to $662.2 million, with operating profit up 15%.

General expenses were up 10% for the quarter, but this is offset by the impressive 15% climb in income from operations. Revenue in the US, Canada and Latin America had increased by 10% compared Q3 2018, and the combined Europe and Asia market grew by 6%.

These increases were mostly driven by sales of physical products like sleep masks and other devices. And the introduction of the AirFit N30i (a sleep mask that keeps tubes away from the wearer’s face, meaning they can sleep in any position) creates ‘a solid pipeline to support future growth’ in their mask portfolio, according to CEO Mick Farrell.

The broader availability of ResMed’s Mobi device — a light-weight, portable oxygen concentrator with efficient battery life — will likely have been another attractive product to COPD sufferers.

It’s promising to see a significant amount attributed to research and development expenses, which is up 27% to $47.6 million in this quarter, compared to $37.4 million spent in the three months ending 31 March 2018.

As Mick Farrell notes:

We [are currently executing] our long-term strategy to provide innovative products, software and solutions to improve outcomes, create efficiencies, and reduce overall healthcare system costs. We are on a trajectory to improve 250 million lives in out-of-hospital care by 2025.

Potential setbacks seem resolved or avoidable

Earlier in the quarter, ResMed announced an agreement with Fisher & Paykel Healthcare to settle all outstanding patent infringement disputes regarding medical devices over the past three years, which was costing both companies millions.

The settlement doesn’t involve any payment or admission of liability for either company, as announced in a joint statement on the ASX. And there will be no further infringement proceedings on products.

Mick Farrell said at the time:

We will defend our intellectual property wherever necessary to ensure that our mask, device and software customers receive the innovative solutions they deserve.’

And as these masks and devices are clearly the meat of ResMed’s revenue generation, it will come as a comfort to investors knowing the company seek to protect this sector. The fact that mask sales were up 13% globally despite the excessive volatility of the world market in recent months is a testament to this effort.

In other news, ResMed completed a $225 million acquisition of digital therapeutics company Propeller Health specialising in COPD and asthma health solutions. They also announced the acquisition of HB Healthcare, a South Korean medical equipment provider that will expand ResMed’s reach into Korea’s respiratory care market.

It may be worth keeping an eye on debt levels with these acquisition expenses, but today’s results strongly suggest a company that is paving their future path in the right direction.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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