ResMed Inc

RMD Details

Overvalued Position at the Current Juncture:ResMed Inc (ASX: RMD) operates in the sleep and respiratory disorders sector of the medical device industry. Moreover, following the acquisition of Brightree LLC in April 2016, it includes operations such as business management software and services to medical equipment and home health providers. The company recently announced an ordinary dividend of USD 0.037 per securityfor RMD - CDI 10:1 FOREIGN EXEMPT NYSE, for which the ex-date was May 8, 2019 and payment date was June 13, 2019.  The company recently updated that it has issued Chess Depository Instruments (CDI) of 1,433,459,720 at the average issue price for stock options at US$4.65.

3QFY19 Key Highlights: The company witnessed a decent top-line growth across all the segments with a solid contribution from recently acquired SaaS companies and growth in international device sales. Revenue in the U.S., Canada, and Latin America, excluding Software as a Service (SaaS) recorded a pcp growth of 10%, driven by excellent revenue across mask and device product portfolios. Net revenue for the March’19 quarter period was reported at $662.23 Mn as compared to $591.63 Mn in March’18 quarter. The net income for the March’19 quarter period was reported at $105.42 Mn as compared to $110.13 Mn in March’18 quarter.

SaaS in the U.S., Canada, and Latin America posted a growth of 101%, on the back of continued growth in Brightree service offerings and incremental contribution from the acquisition of MatrixCare. Revenue from Combined Europe, Asia and other markets recorded a pcp growth of 6% (Constant Currency). GAAP diluted EPS (earnings per share) saw a decrease of 4%, largely driven by the impact of recent acquisitions, increased interest and income tax expense.

Non-GAAP diluted EPS was 3% lower on pcp. Cash flow from operations for the period came in at $139.6 million as compared to net income of $105.4 millionin the quarter. Gross margin increased to 59.2% in 3QFY19 against 58.2% in 3QFY18, mainly due to higher margin contribution from MatrixCare.


March’19 Quarter P&L Statement (Source: Company Reports)

As per the company’s balance sheet, its cash and cash equivalents at the end of the quarter period was reported at $146.51 Mn as compared to $188.70 Mn at the end of June 30, 2018.Account receivables, net of allowance for doubtful accounts, for the period was reported at $511.40 Mn as compared to $483.68 Mn at the end of June 30, 2018. The inventories for the quarter period was reported at $319.93 Mn as compared to $268.70 Mn at the end of June 30, 2018. The total non-current assets of the company, which comprised of property, plant and equipment, Goodwill, Other intangible assets, deferred income taxes, and prepaid taxes and other non-current assets, was reported at $2,995.83 Mn as compared to $1,998.21 Mn at the end of June 30, 2018. Under current liabilities, the account payables, accrued expenses, deferred revenue, income taxes payable and short-term debt were reported at $124.47 Mn, $191.13 Mn, $82.29 Mn, $52.74 Mn and $123.46 Mn as at March 30, 2019, as compared to $92.72 Mn, $185.81 Mn, $60.83 Mn, $160.43 Mn and $11.47 Mn at the end of June 30, 2018. The total non-current liabilities for the quarter period was reported at $1,614.23 Mn as compared to $493.69 Mn at the end of June 30, 2018. Under the shareholders’ equity, the retained earnings for the quarter period was reported at $2,420.73 Mn as compared to $2,432.33 Mn at the end of June 30, 2018.

Stock Recommendation: RMD’s share generated positive YTD return of 7.04%. It is trading close to its 52-weeks high level of $17.750. Gross margin for H1FY19 stood at 58.2%, which is lower than the industry median of 64.6%. Moreover, on the valuation front, EV/Sales and EV/EBITDA multiple for TTM stand at 7.50x and 24.42x, which are higher than the peer median of 2.09x and 15.17x, respectively, indicating overvalued position at the current juncture. Hence, considering the stretched valuations and current trading level, we advise the investors to book the profit at the current level and, therefore, recommend a “Sell” rating on the stock at the current market price of $17.650, up 0.8% on July 2, 2019.


RMD Daily Chart (Source: Thomson Reuters)

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