ResMed Inc.’s RMD growth in the second quarter of fiscal 2025 can be attributed to the robust performance of its Mask business. Its Device sales continue to drive overall revenue growth. The company’s SaaS business growth is driven by strategic buyouts. However, the increasing debt burden on ResMed’s operations remains a concern.  

In the past year, shares of this Zacks Rank #2 (Buy) company have surged 16.9%, outperforming the industry’s 9.2% growth and the S&P 500 composite’s 14.5% rise.

The renowned medical device company has a market capitalization of $32.87 billion. RMD has an earnings yield of 4.2%, outpacing the industry’s 1.5%. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 6.86%.  

Let’s delve deeper.

RMD’s Key Tailwinds

Recovery in Device Sales: ResMed’s increased device sales continue to drive overall revenue growth, reflecting the ongoing combined availability of AirSense 10 and AirSense 11 sleep devices to support strong underlying global demand. 

During the second quarter of fiscal 2025, the company successfully maintained its market leadership banking on its two AirSense platforms. Globally, device sales grew 11% reportedly. Global device sales were driven by strong market performance from both the AirSense 10 and AirSense 11 platforms. The company is currently working to increase the availability of the AirSense 11 platform worldwide by securing market-by-market regulatory clearances. In lieu of this, ResMed launched Airsense11 in India during the quarter under review.

Strategic Pacts to Boost SaaS Business: The business is considered an essential part of ResMed’s growth strategy, complementing the software and device solutions across the company’s core sleep apnea and respiratory care businesses. 

RMD tends to opt for strategic buyouts to boost SaaS revenues. The most recent addition to the portfolio, MEDIFOX DAN, continues to surpass the company’s initial expectations with an accelerated contribution. Per the latest update at the end of the fiscal second quarter, ResMed’s SaaS business reported 8% growth year over year, reflecting strong contributions from the MEDIFOX DAN brand. 

Meanwhile, the Brightree brand experienced high single-digit growth in the quarter under review. The company’s home nursing software business also experienced strong growth. 

RMD is expanding its Brightree reSupply program. It expects to have sustainable organic growth across its portfolio of SaaS solutions, including in-home medical equipment, home health, home nursing and beyond.

Robust Mask Sales: ResMed continues to see strong demand for its market-leading mask portfolio, gaining from a competitor’s recall. Continued product development is driving growth within this business globally. The company has successfully introduced a full suite of masks in its AirFit and, AirTouch and other ranges. Further, to promote greater patient adherence, ResMed offers advanced and expanded integrations of its therapy-based software solutions, including AirView. 

During the fiscal second quarter, revenues from Masks and other businesses increased 11% year over year globally. The growth was driven by the ongoing rollout of the ReSupply program, Brightree for home care medical equipment providers, myAir for patients and Snap technology. 

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RMD’s Key Headwinds

Escalating Debt Level: The company’s high debt level is a concern. As of Sept. 30, 2024, long-term debt was $663 million, while cash and cash equivalents totaled only $522 million. A higher debt level induces higher interest payments, which comes with the risk of failure to pay them. At the end of the second quarter of fiscal 2025, the company had a payout rate of 22.9%, down sequentially.

RMD’s Estimate Trend

The Zacks Consensus Estimate for fiscal 2025 earnings has moved north 0.3% to $9.47 per share in the past 30 days.

The consensus estimate for fiscal 2025 revenues is pegged at $5.11 billion, which indicates a 9% increase from the year-ago reported number.

Other Key Picks

Some other top-ranked stocks in the broader medical space are Phibro Animal Health PAHC, Boston Scientific BSX and Cardinal Health CAH.

Phibro Animal Health has an estimated fiscal 2025 earnings growth rate of 62.2% compared with the industry’s 17.2%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 27.06%. Its shares have surged 68.2% compared with the industry’s 12.5% growth in the past year.

PAHC sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific, carrying a Zacks Rank #2 at present, has an earnings yield of 2.7% compared with the industry’s 1.5%. Shares of the company have rallied 56.9% compared with the industry’s 12.5% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.25%.

Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 10.7% compared with the industry’s 9.5%. Shares of the company have rallied 15.9% against the industry’s 4.1% decline. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 9.64%.

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This article originally published on Zacks Investment Research (zacks.com).

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