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Stock in Focus – ResMed

Operations

ResMed (RMD) is a stgeloper, manufacturer and distributor of medical equipment for diagnosing and managing sleep disordered breathing (SDB) and other respiratory disorders. RMD operates in over 70 countries and has offices in Asia, Europe, North America, Australia and New Zealand. The company’s product range includes flow generators, diagnostic products, mask systems, headgear and other accessories.

Investment opinion

RMD has posted outstanding results in the past two reporting periods due to an increasing awareness about the importance of treatment and management of sleep disordered breathing and other respiratory disorders. RMD is poised to capitalise on solid demand and a pipeline of new products scheduled for release over the next 18 months. With strong growth prospects, RMD may be an attractive investment option.
 
Financials

RMD remains in a strong position of financial health. Weakness in the company’s balance sheet was offset by strength in the profit and loss and cash flow statements. Net operating profit before tax and significant items rose by 45.47% to $123,712 million for the period 1 July to 31 December 2008 from $85,042 million in the previous corresponding period as a result of higher revenues. EPS increased by 51.77% from 7.61 cents to 11.55 cents. This record result may be attributed to the introduction of new products such as the Activa LT in the mask category and Swift LT for Her, the company’s first gender specific product targeted at the rapidly growing female segment of the therapy market. RMD also enjoyed record sales of its existing products with ROA increasing from 11.36% to 13.11%.

Valuation

The company last closed at $6.25 which is a discount to our valuation of $6.77 and suggests that the company is potentially undervalued at its current price.

Outlook

The outlook for the company remains positive. In RMD’s latest results presentation, management said that the company continues to see improvement in the business and was encouraged by the margin expansion in the second quarter of FY09. Management expects continued improvement over the course of FY09 as RMD benefits from accelerating sales of its high margin masks and VPAP ventilation stgices, continuing efforts to leverage cost efficiencies across its global organisation and the depreciation of the Australian dollar. Furthermore, the company said that they remain well positioned to execute their strategy of introducing innovative new products and driving adoption of sleep disorder breathing therapies in a rapidly growing global market. Analysts are also predicting strong growth for RMD and expect the company to increase EPS by 86.99% to 27.60 cents for FY09

Why are company news and announcements so important?

Twice a year, all listed companies are required by law to report their annual and interim financial results to the ASX. By analysing and interpreting these results as soon as they are made publicly available, you can identify financially healthy companies exhibiting wonderful fundamentals before the market understands the full significance of their report.

Also, by paying attention to company announcements made directly to the ASX, you can stay up-to-date with the activities and performance details of stocks between annual and interim reports.

News and announcements can often have an immediate impact on a company’s share price. Good news such as profit upgrades or strategic acquisitions can have a positive impact on share price. Bad news such as profit downgrades or the resignation of a key executive can often have a negative impact on share price.

In our example of RMD above, the company reported outstanding financial results for the FY09 interim period announcing strong revenue and profit growth. Also, management have indicated that they are optimistic about the company’s future growth prospects as they execute their strategy to introduce more innovative new products into this rapidly growing global market.

This news has been perceived favourably by the market and sentiment on the stock remains positive. Should RMD achieve their full year FY09 earnings targets, the company is in an ideal position to continue to deliver share price appreciation to shareholders.

Tim Lincoln is Managing Director of Lincoln, Australia’s premier fundamental analysis research house and fund manager offering intelligent sharemarket solutions for the conscientious investor. Click here to register to receive Star Gazing – Lincoln’s Fortnightly Stock Tip. 

 

Other articles in this week’s newsletter

Stocks: Stock Picker Showdown – 5 Portfolios & 50 Stocks put to the test

Share Tips: 18 Broker Share Tips – 2 March

Outlook: Stocks & Stats to watch out for this week

Companies: Outlook for BHP is not so clear

Fundamentals: Stock in focus – ResMed

Debt: Aussies reducing debt on economic fears

Global Crisis: Wen warns economic crisis hitting China 

Breaking News: Click here for a full list of the latest breaking news 

 

Important information:

Author: Tim Lincoln. Lincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740. This information is current as at 25 February 2009.

Our advice and the advice of our Authorised Representatives (including advice in this communication) are prepared without taking into account your personal circumstances.

You should therefore consider the appropriateness of the advice in light of your objections, financial situation and needs, before acting on it. Where our advice relates to the acquisition or possible acquisition of a financial product, you should obtain a copy of and consider the Financial Services Guide (FSG) before making any decision. Investments can go up and down. Past performance is not a reliable indicator of future performance.

Our analysis and advice is impacted by AIFRS. Please refer to our website for further information: www.lincolnindicators.com.au/AIFRS. Testimonials are provided by third parties for information purposes only and are not intended to be financial product advice. They do not represent opinion or advice from Lincoln. The information provided may not be appropriate to your particular circumstances. You should consider obtaining your own independent advice before making any decision.

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