Earnings jumped 13.3% at ResMed

Rising demand for sleep and respiratory care devices as well as accompanying software offerings led to a 12.5% revenue boost for ResMed during the most-recent quarter.

The firm recently completed its largest acquisition to date as it bought a maker and seller of out-of-hospital software solutions for $1.0 billion. This improved its access to the German market and complements its existing software offerings.

Meanwhile the stock trades at 25.5 times the company’s 2024 earnings forecast.

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RESMED INC. (New York symbol RMD; www.resmed.com) helps investors tap the growing market for medical devices used to treat sleep apnea. ResMed’s CPAP (nasal continuous positive airway pressure) devices are also used to treat patients with chronic obstructive pulmonary disease as well as other respiratory conditions.

With each new machine ResMed sells, it acquires a potential long-term customer for replacement parts. They include tubing, masks and so on, which must be replaced several times a year and so provide steady recurring revenue.

In addition, the company is a provider of cloud-based software health applications and devices enabling clinicians to manage more patients efficiently and effectively through connected-care devices, as well as enabling and encouraging patients’ long-term adherence to their therapy. ResMed also provides management software to agencies offering out-of-hospital care, including home medical equipment, home health and hospice care, skilled nursing, life plan community and senior living assistance.

The outlook for sleep apnea products and services is strong. As that treatment becomes more common for younger people, and across a wider geographical area, sales growth for ResMed and other sleep apnea equipment makers should speed up. Meantime, the company’s expanding software offerings are a key growth area.

Growth Stocks: ResMed’s strong revenue growth and a dividend increase are linked to software

In November 2022, the company completed the acquisition of Medifox Dan from private equity firm Hg. Medifox is a German maker and seller of out-of-hospital software solutions for providers in major settings. The price for the privately held firm was $1.0 billion U.S. and was ResMed’s largest acquisition to date.

Medifox had annual revenue of about $83 million. The acquisition added immediately to ResMed’s per-share earnings.

Medifox’s clinical, financial, and operational solutions are used by out-of-hospital care providers for documentation, personnel planning, administration, billing and more. Its software is similar to ResMed’s current software offerings MatrixCare and Brightree. Medifox now gives ResMed increased access to the German market.

In the three months ended December 31, 2023, the company’s revenue rose 12.5%, to $1.16 billion from $1.03 billion a year earlier. The increase came from higher demand for its sleep and respiratory care devices, as well as its software offerings. Excluding one-time items, earnings per share in the quarter rose 13.3%, to $1.88 from $1.66.

ResMed holds $210.3 million in cash. Meanwhile, it has long-term debt of $1.22 billion, which is a low 4% of its market cap.

The company raised its quarterly dividend by 9.1% with the September 2023 payment, to $0.48 a share from $0.44. The shares now yield 1.0%. ResMed’s expanding software offerings are a key growth area.

Recommendation in Power Growth Investor: ResMed Inc. is a buy.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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