Spooked Investors Send ResMed (RMD) Stock Spiraling; Analysts Weigh In


Send ResMed (RMD) shares tanked nearly 18% today, leaving investors at odds over when it will hit a bottom. What’s causing investors to hit the exits? The medical equipment maker reported fiscal second-quarter earnings that failed to live up to Wall Street’s expectations. Specifically, ResMed posted revenue of $651.1 million, which came in well below Wall Street’s expectation of $672.9 million. However, adjusted earnings per share (EPS) came in at $1.00, slightly ahead of the consensus estimate of $0.95.

Needham analyst Michael Matson commented, “RMD’s revenue missed while EPS beat consensus in F2Q19 due to a lower than expected tax rate. Revenue growth slowed to 5% CC organic in F2Q19 vs. 12% CC organic in F1Q19 due mainly to slower international flow generator growth as France and Japan completed their connected device upgrades. RMD’s software acquisitions, efficiency, and mix overcame pricing and its gross margin improved by 90 bps Y/Y while its operating margin (including amortization) improved by 80 bps Y/Y. Since RMD expects the slower international flow generator growth to continue for the next few quarters, we have lowered our organic growth estimates to the mid-single digits. Given the slower organic revenue growth (5%) and only modest EPS growth (2%) we now expect in CY19 combined with RMD’s premium valuation.”

Matson reiterates a Hold rating on RMD stock, without suggesting a price target. (To watch Matson’s track record, click here)

JPMorgan analyst David Low appears to be more concerned about where RMD is heading next. The analyst just downgraded the stock from Buy to Neutral, while cutting the price target to AUD15.20 (from AUD16.70), which implies about 5% upside from current levels. (To watch Low’s track record, click here)

Ultimately, the word on the Street points to a sidelined majority on ResMed. In the last three months, the sluggish stock has landed one ‘buy,’ two ‘hold’ and one ‘sell’ ratings. That said, the consensus average price target points to $103.50, or nearly 8% upside potential for the stock. (See RMD’s price targets and analyst ratings on TipRanks)

 

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