ResMed "flexed its operating muscle" with a strong December-quarter beat, an analyst said Thursday as RMD stock surged.
Late Tuesday, the maker of digital health devices reported adjusted earnings of $1.88 per share and $1.16 billion in sales for the fiscal second quarter. Both results easily topped expectations, according to FactSet. Profit grew 13% while sales climbed 12%. Excluding the impact of exchange rates, sales rose 11%.
"The performance this quarter along with growth initiatives outlined — commercial and new product — should ease investor fears and build a clearer picture of future drivers of ResMed's revenue and earnings growth," William Blair analyst Margaret Kaczor Andrew said in a report.
On today's stock market, RMD stock jumped 8.5% to 186.35. Shares closed above their 200-day moving average for the first time since August, according to MarketSmith.com.
RMD Stock: The Details Matter
ResMed makes cloud-connected health devices that treat chronic diseases. Notably, this includes continuous positive airway pressure, or CPAP, devices for people with sleep apnea. Last year, RMD stock and others struggled amid expectations weight-loss drugs from Novo Nordisk and Eli Lilly would render moot devices that treat conditions related to obesity.
William Blair's Andrew noted ResMed came up with a "small beat." But the details matter.
"Device growth reaccelerated despite a more difficult comparison (one of the key metrics for investors going into this quarter)," she said. "Americas device growth of 7.5% was better than our model of 6% and ex-Americas device growth of 16% in constant currency was better than our model of 5%. This should add confidence that demand for its products and CPAP remains solid and at least stable if not improving."
Going Up Against Weight-Loss Drugs
Still, RMD stock investors are closely watching an Eli Lilly study called Surmount-OSA, which is testing its weight-loss drug in patients with obstructive sleep apnea. Lilly expects to have the results from that study this spring.
ResMed management expects the drug to drive a 50% to 65% reduction in apnea-hypopnea index scores, or AHI. This measures the number of sleep apnea events that occur during each hour of sleep. CPAPs, on the other hand, have been shown to reduce sleep apnea events by at least 85%, Andrew said. She expects physicians to continue preferring CPAPs for treating obstructive sleep apnea.
Weight-loss drugs "will likely be considered a complement to CPAP (rather than a replacement or first-line therapy) given that this magnitude of AHI reduction is less efficacious than CPAP by itself," she said. "But the combination of both will presumably demonstrate the greatest reduction in AHI."
Andrew reiterated her outperform rating on RMD stock.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
