ResMed (RMD) Up 7.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for ResMed (RMD). Shares have added about 7.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ResMed due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

ResMed Sees Y/Y Rise in Q3 Revenues on Strong Mask Business

ResMed announced third-quarter fiscal 2019 adjusted earnings per share (EPS) of 89 cents, reflecting a 3.3% decline from the year-ago number. The metric, however, beat the Zacks Consensus Estimate by

Including one-time items, ResMed delivered EPS of 73 cents in the quarter under review as compared to 76 cents a year ago.

Revenues in the reported quarter increased 11.9% year over year (up 15% at constant exchange rate or CER) to $662.2 million. The figure came in line with the Zacks Consensus Estimate.

A Closer View of the Top Line

Geographically, excluding Software as a Service, revenues in the United States, Canada and Latin America totaled $350 million, mirroring a 10% increase over the prior-year period. Revenues from Software as a Service in the quarter under consideration summed $79.9 million, representing a 101% jump year over year. Revenues in the combined EMEA and APAC region were $232.3 million, highlighting a 6% rise at CER from the year-earlier tally.

Gross margin for the fiscal third quarter was 59.2%, translating to a 100-basis point expansion from the year-ago number.

Selling, general and administrative expenses were up 6.411% year over year to $164.5 million while Research and Development expenses increased 27% to $47.6 million. This, in turn, induced a 14.5% rise in adjusted operating expenses, which amounted to $212.1 million. However, adjusted operating margin in the reported quarter rose 27 bps to 27.1%.

Financial Updates

ResMed exited third-quarter fiscal 2019 with cash and cash equivalents of $146.5 million compared with $149.5 million at the end of the second quarter.

Year to date, the company generated $317.2 million of cash flow from operations compared with the year-ago figure of $375.6 million.

Along with the earnings release of the fiscal third quarter, ResMed announced its regular quarterly dividend of 37 cents per share.

Outlook

In its latest earnings report, the company did not mention its fiscal guidance.

However, the company earlier stated that it expects its gross margin for the second half of fiscal 2019 to be broadly consistent with its year-ago gross margin. SG&A as a percentage of revenues is expected to be within 25% for the second half of the current fiscal year. Meanwhile, R&D expenses as a percentage of revenues is projected in the 7-8% range for the second half of fiscal 2019.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

At this time, ResMed has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

ResMed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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