ResMed (RMD) Up 6.1% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for ResMed Inc. RMD. Shares have added about 6.1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is RMD 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 catalysts.

Recent Earnings

ResMed  announced third-quarter fiscal 2018 adjusted earnings per share (EPS) of 92 cents, up 29.6% from the prior-year quarter. Earnings beat the Zacks Consensus Estimate of 83 cents by 10.8%.

Including one-time items, ResMed reported EPS of 76 cents in the quarter, up 22.6% year over year.

A Closer View of the Top Line

Revenues in the reported quarter increased 15.1% year over year (up 10% at constant exchange rate or CER) to $591.6 million. The figure also beat the Zacks Consensus Estimate of $564.9 million.

On a geographic basis, excluding Brightree, revenues in the United States, Canada and Latin America totaled $317.5 million, reflecting a 7% increase over the prior-year quarter. Moreover, revenues from Brightree in the quarter totaled $39.9 million, up 14% year over year. Revenues in the combined EMEA and APAC region were $234.2 million, highlighting an 16% rise at CER from a year ago.

Adjusted gross margin contracted 10 basis points (bps) year over year to 58.2% in the reported quarter. Fall in average selling prices led to the gross margin contraction, which was however, partially offset by procurement and production efficiencies.

Selling, general and administrative expenses were up 7.3% year over year to $147.9 million, while there was a 6.6% increase in Research and Development expenses to $37.4 million. This led to an 7.1% rise in adjusted operating expenses, which amounted to $185.3 million. However, adjusted operating margin in the quarter rose 230 bps to 26.9%.

Financial Updates

ResMed exited third-quarter fiscal 2018 with cash and cash equivalents of $704.3 million, compared with $858.9 million at the end of second-quarter fiscal 2018.

Year to date, the company generated $375.6 million of cash flow from operations, up from the year-ago figure of $273.7 million.

Along with the third-quarter earnings release, ResMed announced a quarterly dividend of 35 cents per share, same as the prior payout. The dividend will be paid on Jun 14, to shareholders of record as on May 10.

As part of the company’s capital management plan, ResMed repurchased 200,000 shares for $19.4 million in the fiscal third quarter.

Guidance

Management expects SG&A expenses of around 25%, as a percentage of revenues, for the fourth-quarter fiscal 2018. R&D expenses, as a percentage of revenues, are projected in the band of 6-7% for the fourth quarter. This reflects marketing expenses associated with product launches along with the ongoing legal expenses.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.

ResMed Inc. Price and Consensus

ResMed Inc. Price and Consensus | ResMed Inc. Quote

VGM Scores

At this time, RMD has an average Growth Score of C, however its Momentum is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise RMD has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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