ResMed Inc (ASX: RMD)
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RMD Details
Growth in revenue but expenses also on the rise:ResMed Inc (ASX: RMD), a healthcare leader with award-winning medical devices and cutting-edge cloud-based software applications for sleep apnea, chronic obstructive pulmonary disease (COPD) and other chronic diseases, saw its share price surging 3% on October 30, 2017 as the group filed form 10Q for QTR ended September 30, 2017.
Primarily, there has been a 13% growth in net revenue compared to the three months ended September 30, 2016 at the back of an increase in unit sales of devices, masks and accessories, while a decline in average selling price capped the growth slightly. Gross margin was 58.4% for the three months ended September 30, 2017 compared to 57.8% for the three months ended September 30, 2016. The group also enhanced its diluted earnings per share to $0.60 per share compared to $0.54 per share for the three months ended September 30, 2016. The group’s cash and cash equivalents totalled $811.1 million with total assets of $3.5 billion and stockholders’ equity of $2.0 billion as at September 30, 2017.On the other hand, the group’s expenses have also expanded with selling, general and administrative expenses rising by 12% while Research and Development Expenses soared by 9%, majorly owing to movement of international currencies against the U.S. dollar.
While the group has a 10% adjusted EPS growth over the last five fiscal years with 77% free cash flow been returned to shareholders over the last rolling five years, pressure is mounting up on expenses side. The group has also reported for a high total other (loss) income, net for the three months ended September 30, 2017, of $4.1 million against a loss of $1.2 million for previous corresponding period owing to an increase in interest expense due to higher borrowings and foreign currency losses. RMD stock is already trading at higher levels and looks “Expensive” at the current price of $10.97
Estia Health Ltd (ASX: EHE)
EHE Details
Improving performance while some headwinds still prevail: Estia Health has enjoyed a good FY17 with many transformations and a renewed board and management team. The company’s strategy to continually divest non-core assets while emphasising on developing new homes has been working well.EHE has reduced its debt to half (to $102.3 million) with a reduced gearing. About $4.9 million has been invested in significant refurbishments covering five homes during FY17. Further, purchase of a greenfield site at Sunshine Cove in Queensland for $6.5 million and investments with regards to maintenance of capital expenditure and facility enhancement are expected to provide some growth. The group has highlighted a strong pipeline of development opportunities expected to drive performance in FY18 along with considerations of few acquisitions of smaller portfolio or single facilities.The renewal of $330 million loan facilities with Westpac and CBA until August 2020 is enabling the group have flexibility through the phases including development and refurbishment of existing homes.
EHE stock rose 3% on October 30, 2017 with some positive sentiments. Recently, Vinva Investment Management has become a substantial holder for the group. While long term fundamentals may seem to appear, some level of uncertainty still prevails with regards to funding scenario, suspension of dividend reinvestment plan and extent of growth prospects. We put an “Expensive” recommendation at the current price of $3.55, and would review the stock later.
FY17 Performance (Source: Company Reports)
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