##{"id":60798,"date":"2012-10-29T14:57:40","date_gmt":"2012-10-29T03:57:40","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/10\/29\/resmed-arises\/"},"modified":"2012-10-29T14:57:40","modified_gmt":"2012-10-29T03:57:40","slug":"resmed-arises","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/10\/29\/resmed-arises\/","title":{"rendered":"ResMed Arises"},"content":{"rendered":"

\n\t – ResMed<\/span> quarterly well received
\n\t – Margins stronger on improved product mix and efficiencies
\n\t – Brokers lift forecasts and price targets
\n\t – Competitive bidding concerns temper ratings<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tSleep disorder group ResMed<\/span> ((RMS<\/span>)) delivered a well received quarterly result, revenue of US$340 million largely in line with or better than expectations and earnings exceeding expectations thanks to an improvement in gross margins during the period.<\/p>\n

\n\tBA Merrill Lynch suggests the key theme of the result, which saw earnings per share (EPS) of US50.5c come in 5% better than the broker had forecast, reflected a greater mix of high end APAP<\/span> and Bi-Level Flow Generator sales.<\/p>\n

\n\tAs well, Deutsche Bank notes ResMed<\/span> achieved some positive supply chain and manufacturing efficiency gains during the period that helped boost gross margin to 61.4%. This compares to Deutsche's forecast for margins of 60.7%. Management at ResMed<\/span> has guided to gross margins remaining between 60-62% for the balance of FY13<\/span>.<\/p>\n

\n\tA contributing factor to the result in Macquarie's view was a healthy underlying market, as top line growth for the period was 12%. Macquarie suggests the solid gains achieved over the past few results should ease remaining concerns with respect to any slowdown and saturation in the market.<\/p>\n

\n\tChanges to forecasts reflect this, as Macquarie has lifted earnings estimates for ResMed<\/span> by 5-6% through FY15<\/span> post the quarterly report. Others have reacted similarly, as Deutsche's numbers have been increased by 7-8% and BA-ML by 8-10%. <\/p>\n

\n\tThe changes have boosted price targets for the stock, as the consensus target for ResMed<\/span> according to the FNArena<\/span> database now stands at $4.17, up from $3.78 prior to the quarterly report. Targets range from JP Morgan at $3.72 to Citi<\/span> at $4.67.<\/p>\n

\n\tWith the current share price implying upside of only around 5% relative to the consensus price target, broker ratings for ResMed<\/span> remain split between Buy and Hold, with three Buy ratings and five Hold recommendations following a downgrade to Hold from Buy fro Credit Suisse, given a solid run in the share price.<\/p>\n

\n\tOne issue for UBS, which has a Neutral rating, is potential for further negative newsflow<\/span> for ResMed<\/span> in the next couple of months in relation to competitive bidding. While management expects minimal impact from the process, UBS cautions any negative outcome could see ResMed<\/span> shares trade lower, so offering a better opportunity in the stock.<\/p>\n

\n\tMacquarie also takes a cautious view with respect to competitive bidding, noting while little in the way of pricing pressure has been evident in round one regions and the process applies to only 25% of ResMed's<\/span> volumes, there remains the potential for an earnings impact as the process continues. Macquarie rates ResMed<\/span> as Neutral.<\/p>\n

\n\tBA-ML retains a Buy rating on ResMed<\/span>, suggesting the risks associated with competitive bidding are being reduced by a positive mix-shift as more high end products are sold. This is significant, BA-ML pointing out more irrational pricing, where competitive bidding may have the most significant impact, tends to occur in the low-end CPAP<\/span> space.<\/p>\n

\n\tAs well, BA-ML takes the view the market is not fully appreciating the out-year potential of ResMed's<\/span> market leading position on “informatics” systems, as well as the potential for gains from new product launches on coming years.<\/p>\n

\n\tCiti<\/span> agrees with BA-ML's Buy call on ResMed<\/span>, noting the company should deliver EPS growth of 15-20% annually in coming years, with upside risk depending on foreign exchange moves and further share buybacks<\/span>.<\/p>\n

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\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"