Can ResMed (RMD) Maintain Balanced Growth in Q1 Earnings?

ResMed RMD is slated to report first-quarter fiscal 2018 results, after markets close on Oct 26. Last quarter, the company delivered a positive earnings surprise of 2.7%. with average earnings beat of 1.7% for three of the trailing four quarters. Let's see how things are shaping up for this announcement.

Key Catalysts

Similar to the prior quarter, ResMed is expected to gain from strong performance in the domestic and international front. The company’s revenues in the domestic front were driven by solid growth in devices as well as low double-digit software sales growth in the previous quarter.

Internationally, the company’s receipt of French reimbursement approval for telemonitoring buoys optimism. The company believes this reimbursement grant will drive the uptake of Air Solutions ecosystem, including the AirSense 10 and the AirCurve 10 device platforms as well as AirView and myAir software platforms in the to-be-reported quarter.

The Zacks Consensus Estimate for domestic revenues (including the contributions from Brightree) of $334 million reflects an increase of 10.9% from the year-ago quarter. Also, the Zacks Consensus Estimate for international revenues of $177 million indicates a rise of 7.5% from the year-ago quarter.

Overall, fiscal first-quarter total revenues are projected at $501 million, up 7.7% from the prior-year quarter.

ResMed Inc. Price and EPS Surprise

ResMed Inc. Price and EPS Surprise | ResMed Inc. Quote

Here are the other factors that might influence ResMed’s first-quarter results:

Management is particularly upbeat about top-line contributions from launches made in the last fiscal and the last reported quarter. The introduced products include the AirFit  N20, the AirFit  F20, AirTouch full face masks, and the world's smallest continuous positive airway pressure (CPAP) — ResMed AirMini.

ResMed continues to progress steadily on the back of its three-pronged growth strategy. In this regard, the company recently announced two tuck-in acquisitions under the Brightree product portfolio — Conduit Technology, LLC and AllCall Connect. 

Moreover, during the last reported quarter, the company progressed with Brightree's new offering Outcome and Assessment Information Set (OASIS) for the home health and hospice market. We expect this to get reflected in ResMed’s top line in the first quarter. The current Zacks Consensus Estimate for Brightree revenues of $36.9 million reflects an increase of 11.5% from the year-ago quarter.

On the flip side, management expects SG&A expenses margin in the band of 26-27% in the to-be-reported quarter, while it was 26.6% in fourth-quarter fiscal 2017. Also, R&D expenses margin is projected at 7-8% for first-quarter fiscal 2018 as compared to 6.6% in the preceding quarter. This guidance reflects another quarter of gloomy operating margin scenario.

Meanwhile, the company generates a significant portion of its revenues from international markets. This exposes the company to foreign currency fluctuations. Notably, in the last reported quarter, foreign exchange movements hurt earnings by 3 cents per share, reflecting the unfavorable impact of the weaker Euro and stronger Australian dollar relative to the U.S. dollar. This is likely to dent results in the first quarter.

Moreover, overall macroeconomic uncertainties are a major obstacle for the company’s international operations.

Also, the market for sleep-disordered breathing (SDB) products is highly competitive with respect to product price, features and reliability. Other challenges like competitive bidding and reimbursement pressure continue to hurt the stock.

Here is what our quantitative model predicts:

ResMed does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for ResMed is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimates are pegged at 65 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: ResMed carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.

Nonetheless, the Zacks Consensus Estimate for earnings of 65 cents reflects a 4.8% improvement on a year-over-year basis.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Abbott ABT has an Earnings ESP of +0.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology, Inc. ALGN has an Earnings ESP of +2.06% and a Zacks Rank #3.

Henry Schein, Inc. HSIC has an Earnings ESP of +0.33% and a Zacks Rank #3.

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