ResMed, Inc. RMD recently announced a definitive agreement to buy HEALTHCAREfirst— a privately-held provider of software solutions and services to home health and hospice agencies. After meeting certain customary closing conditions and receiving regulatory approvals, the deal is expected to be finalized before the end of first-quarter fiscal 2019 (per ResMed’s calendar).
However, the financial details of the deal have been kept under wraps. Further, the transaction is expected to be immaterial to ResMed’s consolidated financial results.
Buyout Integration & Synergies
Per ResMed, HEALTHCAREfirst’s solutions, comprising electronic health record (EHR) software, billing and coding services, and advanced analytics, complement Brightree’s (ResMed’s wholly-owned subsidiary) line of software solutions. Integration of HEALTHCAREfirst’s solutions with ResMed’s software-as-a-service (SaaS) portfolio will enhance the latter’s efficacy in managing the growing population and providing benefits to patients, their families, agencies and payers.
A Glimpse of the SaaS Business
ResMed witnessed a 14% year-over-year growth in revenues from the Brightree SaaS business in the last reported quarter. Notably, the company has been actively working on chronic disease management algorithms, including population health models, health care analytics, care co-ordination and SaaS models for home health, home nursing and hospice. In this area, the company introduced Brightree's new offering OASIS for the home health and hospice market. Notably, OASIS stands for Outcome and Assessment Information Set.
ResMed is also expanding its range of out-of-hospital software offerings through the acquisition of software-as-a-service businesses for home health, home nursing and other alternative care settings. We believe this buyout will help ResMed solidify its SaaS portfolio.
Market Potential
Per ResMed, a rapidly aging population, growing incidence of chronic conditions along with changes in the trend with higher inclination toward homecare and other lower-cost care settings will continue to provide impetus to the home health and hospice segments.
Going by a Stratistics MRC report published by Reuters, the global home healthcare market is expected to reach a worth of around $494.78 billion in 2023, at a CAGR of 10.1% from 2016 to 2023. In view of the above-stated facts, we believe this buyout is strategically aligned.
Share Price Performance
Over the past three months, shares of ResMed have outperformed its industry. Per the latest price movement, the stock has gained 20% against the industry’s gain of 7.8%.
Zacks Rank & Other Stocks to Consider
ResMed currently carries a Zacks Rank #2 (Buy).
Other top-ranked stocks in the broader medical sector are Intuitive Surgical ISRG, Illumina, Inc ILMN and Amedisys, Inc. AMED. While Intuitive Surgical and Illumina sport a Zacks Rank #1 (Strong Buy), Amedisys carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical has an expected long-term earnings growth rate of 12.1%.
Illumina expects long-term earnings growth of 20%.
Amedisys projects long-term earnings growth of 17.5%.
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