California-based ResMed Inc. RMD, a pioneer in sleep and respiratory disorder related medicines, is set to report its first-quarter fiscal 2016 financial results on Oct 22, after the market closes.
Last quarter, the company had delivered a positive earnings surprise of 6.25%. Notably, ResMed’s earnings have outpaced the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 2.35%. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that the company is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: ResMed has an Earnings ESP of +1.70%. That is because the Most Accurate Estimate is 60 cents while the Zacks Consensus Estimate is pegged lower at 59 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: ResMed has a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) 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 #1 and +1.70% ESP makes us confident of a positive earnings beat at the company.
What is Driving the Better than Expected Earnings?
Over the last few months, ResMed has made some meaningful investments, to expand its business across the global market. Plans for further international expansion, particularly in Europe and Asia-Pacific, are also inthe cards.
With this aim in view, in early July 2015, ResMed acquired Westminster-based CareTouch – a leading provider of internet-based and therapy-focused resupply solutions that facilitate the Home Medical Equipment (HME) industry. This acquisition is in line with ResMed’s efforts to facilitate and organize communications between HME providers and their patients using the unique CareTouch 360 portal. This, we believe, will bolster ResMed’s existing footprint in the billion-dollar HME industry.
At the end of July, ResMed announced its plan to acquire its Chinese competitor – Curative Medical.The acquisition was duly completed in Oct 2015. Curative Medical is a leading provider of non-invasive ventilation and sleep-disordered breathing (SDB) medical devices and accessories in the emerging market of China. With this buyout, ResMed attempts to expand its business not only in China, but also extensively in the Asia-Pacific region. We believe the company will duly enjoy the fruits of this buyout in fiscal 2016.
Currently, the Asia-Pacific region is being deemed the third-largest sleep apnea (or SDB) devices market.Webelieve this acquisition will give ResMed a competitive leverage in the global SDB market, going ahead.
Moreover, management believes the company’s outperformance in America's flow-generated growth will be an added advantage to ResMed’s top-line advancement in fiscal 2016. However, this might have a negative price and geographic mix impact on the company’s gross margin in the current fiscal.
Moreover,the company continues to expect solid Mask and Accessories category growth throughfiscal 2016.
However, with respect to currency impact on ResMed's gross margin, management anticipatesthat the recent depreciation of the euro relative to the dollar will be a potent headwind in the first quarter of 2016.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:
ICON Public Limited Company ICLR, earnings ESP of +1.00% and a Zacks Rank #1.
Myriad Genetics, Inc. MYGN, earnings ESP of +2.86% and a Zacks Rank #2.
Bayer AG BAYRY, earnings ESP of +1.82% and a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment