Key Takeaways:
Current price: $214 Price target: $322
Position size: 2.65% 1-year performance: +4%
- Revenue growth of +13% y/y ex-FX, sales missed expectations. Investors believed RMD could capture more sales from its competitor Phillips product recall but faced components & freight challenges, missing some sales this quarter. We should see some of that to come in the coming quarters, supporting additional top line growth.
- Devices sales +16%
- Masks segment +10%
- Software-as-a-service business grew 8%
- The company was able to capture some market share from the Phillips products recall, which is expected to continue for the next 12 months.
- The digital offering provides some stickiness to new clients won from competitor.
- Gross margin impacted by higher freight and manufacturing costs, down -230bps y/y
- Adjusted EPS up +4%
- We still see long-term thesis in place for this name, with potential to accrue more sales in the coming quarters as supply chain challenges improve, and new clients from competitors start their re-supply of masks and tubes.
- While valuation is not the most attractive, RMD can surprise to the upside with new product introduction and room for tuck-in M&A (balance sheet leverage has gone down and opens the door for additional deals).
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