ResMed focuses on cloud-connected medical devices designed to treat sleep apnoea, COPD and other chronic diseases.
Their last two quarterly updates triggered upward share price surges of around 10% as they revealed strong profit growth for the company. 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 update is no exception.
The ResMed share price added $2.70 to their price within the first hour of trading — a 14.5% spike.
Another strong quarter is proving the potential of the company to investors.
RMD Quarterly highlights
Key highlights from the results update include (figures in USD):
- 16% revenue increase to $681.1 million
- Gross margin up 1.2% to 59.5% (its highest in several years)
- Operating profit up 22%
- $0.39 per share dividend on adjusted earnings per share of $0.93 cents
Revenue (excluding Software as a Service) in the US, Canada and Latin America grew 13% year-on-year. Combined Europe, Asia and other market revenue was up 8% year-on-year.
ResMed CEO Mick Farrell notes the company is ‘particularly pleased’ by the high growth in the mask category during the quarter from strong customer demand.
Meanwhile, their Software as a Service (SaaS) revenue — from their business Matrix Care — increased by 83% from 12 months prior.
This, along with cost savings, led to the margin growth.
ResMed has surpassed consensus EPS estimates four times in the last four quarters, and has topped consensus revenue estimates twice in that time.
Is ResMed a buy?
ResMed currently has a market cap of nearly $27 billion.
This is significantly greater than their fellow blue-chip rivals, like Cochlear Ltd [ASX:COH] and Ramsay Health Care Ltd [ASX:RHC], with market caps of around $12 billion and $14 billion respectively.
Their share price is up 54.91% year-on-year, having been in a consistent uptrend since February this year.
Consistently rising revenues in a leading blue-chip health care business will tend to trigger buy alarms from analysts.
But being an NYSE-listed company as well, it’s important to keep in mind the AUD–USD exchange rate with this stock.
ResMed reports in US dollars, so a stronger US dollar will go against operating profits outside the US.
In addition, industry outlook can materially impact a stock performance. The current consensus EPS estimate is US$0.96 on US$717 million revenues for the coming quarter.
If ResMed fail to meet these estimates, investors may lose confidence in the stock.
That said, ResMed are proving they are capable of turning consistent profit.
They’re certainly a company to keep note of.
Imogen van der Meer,
For Money Morning
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