ResMed (RMD) Up 3.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for ResMed (RMD). Shares have added about 3.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ResMed due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ResMed (RMD) Q3 Earnings Top on Higher Ventilator Sales

ResMed announced strong third-quarter fiscal 2020 results, wherein adjusted earnings per share came in at $1.29, up 45% year over year. The metric also beat the Zacks Consensus Estimate by 29%.

On a GAAP basis, earnings per share was $1.12 for the quarter under review, reflecting an increase of 53% from the year-ago period.

Increase in demand for the company’s life support ventilators, non-invasive ventilators and ventilation mask systems amid the pandemic outbreak boosted ResMed’s sales during the third quarter

Fiscal third-quarter revenues, on a reported basis, increased 16.2% year over year (up 17% at CER) to $769.5 million. The figure beat the Zacks Consensus Estimate by 7.6%.

A Closer View of the Top Line

Geographically, excluding Software-as-a-Service, total Sleep and Respiratory Care revenues in the United States, Canada and Latin America improved 12% at CER from the prior-year period to $393.5 million.

Combined Europe, Asia, and other markets grew 27% at CER to $286.3 million in terms of total Sleep and Respiratory Care. Overall increase in revenues was driven by the robust performance of its mask and device product portfolios on increased demand for ventilators and ventilator masks.

Global revenues from Software-as-a-Service in the quarter under review were $89.6 million, representing 12% increase year over year.

Margins

Adjusted gross margin for the fiscal third quarter was 60%, reflecting an 84-basis point (bps) expansion from the year-ago number. The expansion was fueled by benefits from changes in product mix, and manufacturing and procurement efficiencies, partially offset by declines in average selling prices.

Selling, general and administrative expenses were up 4.8% year over year to $172.4 million (up by 7% at constant exchange rate or CER). Research and development expenses increased 8.1% to $51.4 million (up 8% at CER). However, adjusted operating margin in the reported quarter expanded 377 bps to 30.9%.

Financial Updates

ResMed exited the third quarter of fiscal 2020 with cash and cash equivalents of $352.9 million compared with $204.1 million at the end of the fiscal second quarter.

Cumulative cash flow from operating activities was $471.9 million at the end of the third quarter compared with $317.2 million in the year-ago period.

Along with the earnings release, ResMed announced a regular quarterly dividend payout of 39 cents per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, ResMed has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

ResMed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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