ResMed Balances Weak Q3 With Favorable Fundamentals - Analyst Blog

On June 11, 2014, we issued an updated research report on ResMed, Inc. RMD. ResMed delivered a weak third-quarter fiscal 2014 with in-line earnings and revenues that lagged the Zacks Consensus Estimate. However, the still-untapped obstructive sleep apnea (OSA) market should catalyze growth in the near term.

In the quarter under review, ResMed reported adjusted earnings of 63 cents per share, which although up 8.6% year over year, were merely in line with the Zacks Consensus Estimate. Revenues of $397.8 million increased 3.7% but fell below the Zacks Consensus Estimate of $399 million.

Given the difficult year-over-year comparable and challenging market conditions in the U.S., revenues in the Americas grossed $216.1 million, flat with the year-ago quarter number. Moreover, the ongoing headwind related to reimbursement issues across the world along with the recent healthcare reform in the U.S. continues to take a toll on the company's business.

Nevertheless, ResMed continues to gain from a solid foothold in the huge sleep-disordered breathing (SDB) market. According to the company, several initiatives are now being taken to increase awareness regarding OSA. This has led to improved understanding of the role of SDB treatment in the management of cardiac, neurologic, metabolic and related disorders, and has driven an increase in home-based diagnosis. This, in turn, promises a growing SDB market for the company in the near future.

Continuous solid overseas growth amid several macroeconomic uncertainties is also encouraging. Robust pipeline development also bolsters confidence. Meanwhile, ResMed has been rewarding its shareholders with attractive share repurchases and dividends thus upholding investor faith.

The stock currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Better-ranked stocks that warrant a look in the broader medical sector include Amedisys Inc. AMED, RadNet, Inc. RDNT and HEALTHSOUTH Corp. HLS. All these stocks carry a Zacks Rank #2 (Buy).