Can ResMed (RMD) Maintain Balanced Growth In Q2 Earnings?

ResMed (NYSE:RMD) is slated to report second-quarter fiscal 2018 results, after markets close on Jan 22. Last quarter, the company delivered a positive earnings surprise of 1.5%. Moreover, ResMed has delivered positive earnings surprises in the trailing four quarters, with an average beat of 2.5%. 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. In the last few quarters, the company’s revenues in the domestic front were driven by solid growth in devices and masks as well as continued double-digit software sales growth. Moreover, the sleep apnea patient volume continued to witness steady growth. We expect these trends to continue in the second quarter as well.

Internationally, the company’s receipt of French reimbursement approval for telemonitoring buoys optimism. The company believes this reimbursement grant will continue to 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. Moreover, the company continues to invest and expand its presence in the high-growth markets of China, South Korea, India, Brazil and several countries in Eastern Europe.

The Zacks Consensus Estimate for domestic revenues (including contributions from Brightree) of $373 million reflects an increase of 14.1% from the year-ago quarter. Also, the Zacks Consensus Estimate for international revenues of $222 million indicates a rise of 8.8% from the year-ago quarter.

We are also upbeat about ResMed’s solid performance in the Masks and Other Accessories business. The company is seeking new applications for significant unmet medical needs in this space. Thus, over the recent past, the company introduced the AirFit N20, the AirFit F20 and AirTouch full face masks in different geographies. The AirTouch UltraSoft memory foam cushion is a breakthrough in the treatment of sleep apnea.

Accordingly, the Zacks Consensus Estimate for Masks and Other Accessories revenues of $218 million indicates a rise of 11.2% from the year-ago quarter.

Overall, fiscal second-quarter total revenues are projected at $577 million, up 8.9% 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 second-quarter results:

Management is particularly upbeat about top-line contributions from launches made in the last fiscal and the last reported quarter. One of the latest products is the world's smallest continuous positive airway pressure (CPAP) — ResMed AirMini — which has been commercially launched in 15 countries across North America, Europe and Asia Pacific. Moreover, the company recently announced the connecting of AirMini to AirView, the world's largest remote patient monitoring platform.

ResMed continues to progress steadily on the back of its three-pronged growth strategy. In this regard, the company is looking for growth in adjacent product and geographic markets, including homecare ventilation for Chronic Obstructive Pulmonary Disease (COPD), Amyotrophic Lateral Sclerosis (ALS) and other respiratory disorders, and the emerging markets of China, India and Brazil. ResMed continues to see portable oxygen concentrators (POCs) as an important addition to its menu of respiratory care products. In this regard, the company has re-launched the Activox POC in the last reported fiscal first-quarter with better quality and performance at the United States, Canada and Latin America Sales Conference. The company also expects solid top-line contributions from this launch.

Moreover, during fiscal 2017, ResMed progressed with Brightree's latest 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 second quarter as well. The current Zacks Consensus Estimate for Brightree revenues of $38.5 million reflects an increase of 13.9% from the year-ago quarter.

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 -0.86%. 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 #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.

The Zacks Consensus Estimate for earnings of 78 cents reflects a 6.8% rise 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.

Bio-Rad Laboratories, Inc. (NYSE:BIO) has an Earnings ESP of +4.45% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics, Inc. (NASDAQ:MYGN) has an Earnings ESP of +0.42% and a Zacks Rank #3.

Henry Schein, Inc. (NASDAQ:HSIC) has an Earnings ESP of +0.35% and a Zacks Rank #3.

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