Key Takeaways:
Current price: $275 Price target: $322 NEW ($236 prior)
Position size: 3.09% 1-year performance: +57%
- Revenue growth of +10% y/y ex-FX;- +8% for the full year
- Only competitor Philips unable to supply devices due to recent large recall – this should boost market share gains near term – this is largely priced in the stock, up 30% since the announcement
- Extra sales from recall amount to $300-350M in FY22 – a 10% market share gain in devices -some of which could revert in FY23
- Supply chain constraints also affecting RMD: will slow the ramp up of production, and could last another 12-18 months
- Devices sales +12%:
- New patients starts show recovery post-covid, and boost from competitor recall
- US devices sales were +30%
- Rest of world devices sales -6% due to covid and tough comps y/y with ventilator sales
- Masks segment +10%
- US masks sales +5%
- Ex-US market +24%
- Software-as-a-service business: +5% growth, thanks to resupply program
- Gross margin -260bps y/y (-70bps for the full year) due to higher freight costs (to continue in FY22) and product mix
- Manufacturing efficiencies to ramp up in 2-3 quarters
- FY22 guidance:
- Sales higher from recall by $300-350M
- Near term earnings cut 1-2% from higher costs
- Investor day scheduled for September 8th
- CEO quote: “During the quarter, we saw the ongoing recovery of core sleep apnea and COPD patient flow across our business, as healthcare systems continue to adopt new models of patient care”
Our long-term view on the stock is still valid, with the global sleep apnea market only ~20-30% penetrated, and market volume growth rate ~10% per year – an attractive market where Resmed and Philips play in duopoly.
Thesis on RMD:
- Leading position in the underpenetrated sleep apnea space
- Duopoly market
- New product cycle
- Returns of capital to increase: ~1% share buyback/year (back in FY18), dividend yield of 2%
$RMD.US
[category earnings] [category equity research] [tag RMD]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109