Healthcare company ResMed Inc. (RMD) in San Diego, Calif., develops, manufactures, and markets medical devices and cloud-based software applications to diagnose and treat respiratory disorders, such as sleep apnea, chronic obstructive pulmonary disease (COPD), neuromuscular disease, and other chronic diseases. The stock has gained 10.7% in price over the past year and 14% over the past nine months to close yesterday's trading session at $238.52.

The company delivered double-digit growth across top and bottom-line key metrics in its last reported quarter owing to continuing high demand for sleep and respiratory care products, as well as consistent development in its software-as-a-service business.

Furthermore, RMD’s continuing efforts to drive innovations across all product offerings should foster optimism among investors regarding its future performance.

Here is what could shape RMD's performance in the near term:

Industry Tailwinds

Amid the current COVID-19 pandemic, RMD is witnessing a surge in global demand for its digital health products. The company noted that COVID-19 has increased awareness, adoption, and acceptability of digital health and remote care, including home-based sleep apnea diagnostics.

In its fiscal first quarter, RMD reported that it had 10 billion nights of medical data in the cloud and more than 15.5 million cloud-connected medical devices on bedside tables in 140 countries. Furthermore, the pandemic has boosted the growth of its Telehealth services.

Robust Financials

During the first quarter, ended Sept. 30, 2021, RMD's net revenue increased 20.2% year-over-year to $904.02 million. Its non-GAAP operating income increased 18% year-over-year to $280.7 million. The company's non-GAAP net income grew 20% from its year-ago value to $222 million, while its non-GAAP EPS increased 19% from the prior-year quarter to $1.51.

Strong Profitability

RMD's 58.4% trailing-12-months gross profit margin is 5.4% higher than the 55.4% industry average. Also, its EBITDA margin and asset turnover ratio are 437.9% and 106.1% higher, respectively, than the industry averages. Furthermore, its cash from operations stood at $527.06 million compared to a negative $16.90 million industry average.

Impressive Growth Prospects

The Street expects RMD's revenues and EPS to rise 19.3% and 18.8%, respectively, year-over-year to $3.81 billion and $6.33 in its fiscal 2022. In addition, RMD's EPS is expected to rise at a 23.3% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

Of the eight Wall Street analysts that rated RMD, five rated it Buy, and two rated it Hold. The 12-month median price target of $276.5 indicates a 15.9% potential upside. The price targets range from a low of $234.00 to a high of $302.00.

POWR Ratings Reflect Solid Prospects

RMD has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. RMD has a B grade for Growth and Stability. RMD's solid earnings and revenue growth potential are consistent with the Growth grade. In addition, the stock's 0.30 beta is in sync with the Stability grade.

Among 165 stocks in the Medical – Devices & Equipment industry, RMD is ranked #39.

Beyond what I have stated above, we have graded RMD for Sentiment, Value, Quality, and Momentum. Get all RMD ratings here.

Bottom Line

RMD has exhibited robust revenue and earnings growth in its last reported quarter and is on track to deliver solid performance in the coming months based on its impressive product portfolio. In addition, given the favorable industry prospects and its fundamental strength, the stock could witness significant upside in the near term. So, we think the stock could be a great bet now.

How Does ResMed Inc. (RMD) Stack Up Against its Peers?

RMD has an overall POWR Rating of A, which equates to a Strong Buy rating.  Check out these other stocks within the Medical – Devices & Equipment industry with A (Strong Buy) ratings: Olympus Corporation (OCPNY), Fonar Corporation (FONR), and ICU Medical Inc. (ICUI).

RMD shares fell $3.52 (-1.48%) in premarket trading Tuesday. Year-to-date, RMD has declined -8.43%, versus a -7.39% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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