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ResMed (RMD) Q2 Earnings: Disappointment in the Cards?


ResMed Inc. RMD is slated to report second-quarter fiscal 2017 results, after market close on Jan 23.

Last quarter, the company posted a negative earnings surprise of 1.59%. However, ResMed’s earnings outpaced the Zacks Consensus Estimate in one of the past four quarters, with an average beat of 0.38%.

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

Factors at Play

ResMed posted dismal first-quarter fiscal 2017 results, missing the Zacks Consensus Estimate for both earnings and revenues. Even though the company witnessed strong global device sales, its rising operating expenses are a concern. Overall, adverse foreign exchange movements have affected ResMed’s earnings and overseas sales.

ResMed Inc. Price and EPS Surprise

ResMed Inc. Price and EPS Surprise | ResMed Inc. Quote

Also, the market for sleep-disordered breathing (SDB) products is highly competitive with respect to product price, features and reliability. Moreover, challenges like competitive bidding and rising operating expenses continue to plague the stock.

On the brighter side, ResMed continues to see surging demand for its SDB products. The latest joint venture with renowned surgeon and television host Dr. Mehmet Oz and private equity firm Pegasus Capital Advisors, L.P also underscores the growing popularity of the product line. The alliance resulted in the formation of SleepScore Labs, which is mainly focused on spreading awareness regarding sleeping disorder. We expect this collaboration to help ResMed fortify its position in the consumer sleep market.

Apart from this, ResMed attained a key milestone in the SDB space. After one billion nights of sleep data download using ResMed’s remote patient monitoring platform AirView, the company reached a landmark in the field of sleep research and treatment of sleep apnea. According to management, this huge data facilitates predictive analytics and will accordingly help physicians and providers better manage patients' sleep apnea and Chronic Obstructive Pulmonary Disease (COPD) therapy. This is in line with the company’s second horizon of growth strategy which entails the use of connected devices for the treatment of respiratory failure both in hospitals and at home.

Additionally, the company also very recently unveiled positive data related to its myAir device’s ability to improve adherence to CPAP (continuous positive airway pressure) therapy in patients with sleep apnea.

Notably, ResMed is currently aiming to expand its base in international markets. The company invests in high growth markets like China, South Korea, India, Brazil and many countries in Eastern Europe. Notably, in these regions, ResMed is implementing long-term strategies to improve quality of patient life and reduce healthcare costs. This raises investor confidence in the company’s prospects.

Share Price Performance

In the majority of the last six months, ResMed outperformed the Zacks classified Medical – Products industry with respect to price performance. The company has generated a return of 0.4%, which is favorable compared to the industry’s decline of 6.8%. The company managed to maintain the trend despite the dismal first-quarter fiscal 2017 results, courtesy of the company's solid fundamentals and long-term prospects.

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 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 70 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: ResMed has a Zacks Rank #4 (Sell). Please note that 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:

Histogenics Corporation HSGX has a positive Earnings ESP of 12.77% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Blueprint Medicines Corporation BPMC has an Earnings ESP of +6.85% and a Zacks Rank #2.

Catabasis Pharmaceuticals, Inc. CATB has an Earnings ESP of +5.77% and a Zacks Rank #2.

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