California-based ResMed Inc. RMD is set to report its third-quarter fiscal 2015 earnings on Apr 23 after the market call. Last quarter, the company had delivered a positive earnings surprise of 1.6%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that ResMed is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: ResMed has a positive Earnings ESP of +1.56%.That is because the Most Accurate estimate stands at 65 cents while the Zacks Consensus Estimate is pegged lower at 64 cents. This is very meaningful and a leading indicator of a likely positive earnings surprise.
Zacks Rank: ResMed has a Zacks Rank #3 (Hold).Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of ResMed’s Zacks Rank #3 and +1.56% ESP makes us confident of a positive earnings beat at the company.
What is Driving the Better than Expected Earnings?
ResMed has successfully retained its position as a pioneer in sleep and respiratory disorder related medicines. The company has been focusing on product development and innovation for quite a few months now to maintain its leadership position in the sleep disordered breathing (SDB) market and expand its sales base. These products are expected to lend it a competitive edge in fiscal 2015 and beyond.
During the recently completed third quarter, ResMed launched the AirSense 10 AutoSet for Her device in Europe. We believe with this launch the company will be able to capture a larger market share in Europe and fetch higher profits from this geographical region.
Additionally, earlier in the third quarter, ResMed purchased Internet-driven software solutions provider, Jaysec. Through this acquisition, ResMed should experience reduced administrative burden which in turn, will allow the company to enhance patient care in the home medical equipment (HME) market speedily and at lower costs.
Moreover, to consolidate further in the HME market, ResMed entered into a strategic collaboration with cloud-based software provider – Brightree. This partnership is expected to drive improved workflow efficiencies and patient outcomes for ResMed.
We believe these latest developments will enable ResMed to expand its access in key SDB as well as HME markets in near term.
Currently, ResMed is investing in both respiratory care and sleep apnea channel development to create and lead in both sleep apnea and home ventilation markets in the Asia-Pacific region, with particular focus on the growth potential prevalent in both China and India.
Although unfavorable currency fluctuations, adversely affecting ResMed’s gross margin, has remained a major downside over the past few quarters, management expects to observe a minor upside in gross margins in the second half of fiscal 2015.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Biogen Inc. BIIB, earnings ESP of +0.51% and a Zacks Rank #1.
Mirati Therapeutics, Inc. MRTX, earnings ESP of +10.81% and a Zacks Rank #2.
MEI Pharma, Inc. MEIP, earnings ESP of +3.45% and a Zacks Rank #2.
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