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Trading update: Why the ResMed share price is soaring today

Tom Richardson

The ResMed Inc. (ASX: RMD) share price opened 8.5% higher this morning to $16.08 after the sleep treatment, hospice, and home health business reported its financial results for the quarter ending March 31 2019. Below is a summary of the results with comparisons to prior corresponding periods (pcp) (all figures in US$).

  • Revenue up 12% to $662 million, up 15% on constant currency basis
  • Gross margin up 1% to 59.2%
  • Net profit $105.4m, compared to $110.1m
  • Adjusted earnings per share of US89 cents, down 3%
  • GAAP earnings per share of US73 cents, down 4%
  • Quarterly dividend of US37 cents
  • Software-as-a-service (SaaS) revenue up 101% thanks to Brightree growth and Matrix Care acquisition
  • For 9 months ending Mar 31 2019 Non-GAAP EPS of $2.69 versus $2.58 in pcp

“We had another strong quarter with top-line revenue growth across all categories of our business, including a solid contribution from recently acquired SaaS companies and growth in international device sales,” commented ResMed’s CEO Mick Farrell.

The stock is probably up today as the adjusted earnings per share of US89 cents were ahead of analysts’ expectations, while the 1% rise in the group’s gross profit margin is another positive as it shifts deeper into the digital health, online (cloud-based) and software-as-a-service health sector.

However, its core businesses remain mask and airflow generators that treat sleep apnea, with mask sales up 13% globally and other device sales up 6% globally. This is some decent growth and ResMed operates in large global addressable markets that speak for its bullet proof like top-line growth as it sells market-leading products attractive in lucrative healthcare sectors like the US.

For this business margins also remain key with them remaining steady across the device business, while the software businesses are now helping lift margins, but to be fair ResMed has not held back in spending big to acquire several software businesses recently.

Australian investors should also note the local scrip represents a 1/10th interest in the primary NYSE listing, as such to get a fair value you need to divide by ten before adjusting for the FX rate. For example the quarterly dividend will equal $A0.37 US cents exchanged into approx A$0.5.28 per share.

Outlook

Alongside the likes of Cochlear Ltd (ASX: COH) and CSL Limited (ASX: CSL) this business looks one of the best healthcare operators on the ASX thanks to its market-leading position, investment in research and development, founder led nature and long track record of growth.

The push into the digital health space also makes for nice headlines, but its core operating driver will remains the medical equipment business.

Debt is another risk to watch given the recent acquisition spree on some racy software-as-a-service multiples, although given today’s results it appears to be tracking in the right direction with plenty of room for long-term growth.

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Tom Richardson owns shares of Cochlear Ltd., CSL Ltd., and ResMed Inc.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019