ResMed Boasts Double-Digit EPS Growth, Tariff Exemption: Analysts Boost Price Forecast

On Wednesday, ResMed Inc RMD reported that third-quarter adjusted EPS was $2.37, beating the consensus of $2.36.

Quarterly sales increased 8% year over year to $1.29 billion, which aligns with estimates.

Sales increased 9% on a constant currency basis. The company credited increased demand for sleep devices and growth within the Residential Care Software business. In addition:

• Revenue in the U.S., Canada, and Latin America, excluding Residential Care Software, grew by 9%.
• Revenue in Europe, Asia, and other markets, excluding Residential Care Software, grew by 8% on a constant currency basis.
• Residential Care Software revenue increased by 10% on a constant currency basis, reflecting continued organic growth in the Residential Care Software portfolio.

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Gross margin increased by 140 basis points to 59.3%, mainly due to manufacturing and logistics efficiencies and favorable shifts in product mix, partially offset by unfavorable foreign currency movements. Non-GAAP gross margin increased by 140 basis points to 59.9%.

Adjusted operating income increased 13% to $444.6 million. Adjusted net income increased by 11% to $348.5 million.

William Bliar writes that on tariffs, management confirmed with federal government officials earlier this month that its products are exempt, subject to the Nairobi Protocol, which the company had filed and was approved for in 2009.

• The Nairobi Protocol is an international agreement allowing duty-free importation of products designed for the use of people with disabilities, which has historically included medical devices.
• Though some component costs may not be exempt, management characterized these as having a minimal to immaterial impact.
• Analyst Margaret Kaczor Andrew writes, “This is welcome news, with ResMed the first company this earnings cycle in our coverage universe to report as much.”

Analyst Reaction:

• Keybanc maintains ResMed with an Overweight, raising the price target from $269 to $274.
• Piper Sandler maintains ResMed with a Neutral, lowering the price target from $260 to $248.
• JP Morgan maintains ResMed with an Overweight, raising the price target from $286 to $290.

Price Action: ResMed stock is up 11% at $238.10 at the last check Thursday.

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