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What’s in the Cards for ResMed (RMD) in Q1 Earnings?


ResMed Inc. RMD is scheduled to report first-quarter fiscal 2017 results, after market close on Oct 25.

Last quarter, the company posted a negative earnings surprise of 4.76%. However, ResMed’s earnings outpaced the Zacks Consensus Estimate in one of the past four quarters, with an average beat of 0.35%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

ResMed ended fourth-quarter 2016 with revenues of $324.5 million, a 19% increase year over yearin the U.S. on increased sales of masks, devices and software-as-a-service revenues from the recent takeover of Brightree. Management continues to expect solid growth in mask and other accessories categories in the quarters ahead, which should get reflected in results from the beginning of fiscal 2017.

RESMED INC Price and EPS Surprise

RESMED INC Price and EPS Surprise | RESMED INC Quote

ResMed’s management believes thatthe Brightree acquisition will enhance the former’s operational efficiency in providing digital solutions, apart from improving its cash-flow structure. From the financial point, this buyout is expected to improve the company’s gross margins and adjusted earnings. Also, the Inova Labs acquisition should expand ReMed’s offerings and solutions to address global chronic obstructive pulmonary disease (COPD), which affectsmany people. The acquisition is in line with its objective to improve 20 million lives by 2020. While the integration of the acquisitions is going on, ResMed is expected to see a strong first-quarter 2017 results.

Notably, ResMed discussed three horizons of its growth strategy ‘ResMed 2020’ planin the last reported quarter. The first horizon has been designed toachieve sustainable global leadership in healthcare informatics, expansion in high-growth geographic markets and operational excellence. The second horizon entails the use of connected devices for the treatment of respiratory failure both in hospitals and at home. Due to smoking and increased pollution, there are increased cases of chronic obstructive pulmonary disorder (COPD) which remain largely unaddressed.

Recently, ResMed announced positive data from a multicenter, randomized controlled trial known as HOT-HMV. The new study exhibited that using ResMed’s non-invasive ventilation therapy to treat patients with COPD at home reduces risk of re-hospitalization and death. This should help the company expand its product portfolio in the market globally in fiscal 2017.

Assuming the current exchange rates and trends in product and geographic mix, ResMed maintains gross margin projections in the range of 57% to 60% for fiscal 2017.

Earnings Whispers

Our proven model does not conclusively show that ResMed is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: ResMed has an earnings ESP of -4.76%. That is because the Most Accurate estimate stands lower at 60 cents while the Zacks Consensus Estimate is pegged at 63 cents.

Zacks Rank: ResMed has a Zacks Rank #3 (Hold) that increases the predictive power of ESP. However, an ESP of -4.76% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Glaukos Corporation GKOS has an Earnings ESP of +200% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Edward Lifesciences Corp. EW has an Earnings ESP of +2.94% and a Zacks Rank #2.

Invuity, Inc. IVTY has an Earnings ESP of +15.87% and a Zacks Rank #2.

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