The Resmed CDI (ASX: RMD) share price bounced 6.5% higher today following the release of its Q3 results on Friday.
The RMD share price closed flat on Friday, in a muted reaction to a beat to consensus sales and profit numbers. However, the share price caught up on Monday with the news being digested and investors reacting positively to it.
Resmed’s Result
The sleep apnoea devices and masks company reported sales increased +29% quarter over quarter to US$1.11 billion, or +31% on a constant currency basis. Resmed cited a production ramp-up and robust deliveries of sleep apnoea devices following supply chain disruptions and chip shortages experienced previously.
Gross margins contracted by 150 basis points to 55.3% due to an unfavourable product mix and higher component costs, partially offset by an increase in average selling prices.
SG&A expenses increased by 28% with higher employee and travel-related costs as a result of the increased device sales.
The net result was income from operations improved by +28%, and EPS (earning per share) came in at US$1.58 for the quarter, vs FY23 consensus of US$6 per share (referencing the US stock price for Resmedi, which is US$225 due to the dual listing). This implies a run rate of EPS that might be tracking ahead of consensus expectations which is generally a key positive driver of share price performance.
RMD also noted that cloud-connected device SaaS revenues continued to grow strongly. The acquisition of MEDIFOX DAN and continued organic growth in its SaaS portfolio contributed to this +35% segment growth.
Resmed earnings growth
RMD continues to benefit from the recall that competitor Phillips is experiencing after its sleep devices malfunctioned. These issues typically take many years to resolve when looking at similar cases historically, so RMD should continue to grow market share.
Covid induced supply chain issues and chip/component shortages caused “allocations” (customers receiving fewer devices than ordered). Historically gross margins have come in at 58-60%. This result saw gross margins of 55.3%. Analysts see these factors normalising over time to support earnings growth.
Resmed’s outlook
Resmed continues to experience growth across all major geographies (US, Canada, Latin America, Europe, Asia).
Management commentary implies that it has sold 156 million devices to patients and it is well on its way to achieve 250 million people by 2025, which would suggest continued high market penetration in a large addressable market that is still in its early stage of uptake.
We think pockets of ASX healthcare stocks remain good value given shares have lagged broader indices since covid. RMD (~30x P/E) and CSL Limited (ASX: CSL) (~32x P/E) look more attractive from a valuation perspective relative to Cochlear Ltd (ASX: COH) (~49x P/E) which has rallied recently to a more elevated valuation. You can read my recent updates on CSL shares here.
Resmed’s dividend
Resmed declared a quarterly dividend of US$0.44 per share distribution (unfranked due to overseas earnings). For its Aussie shares this equates to 4.44 cents per quarter, or 17 cents when annualised, implying a 0.5% yield. RMD remains a growth stock rather than a dividend income play.
