ResMed stock broke out early Friday after the CPAP maker broadly beat third-quarter projections.
The San Diego, Calif.-based company makes continuous positive airway pressure devices, or CPAPs. These face-worn masks help open the airways while patients sleep, treating obstructive sleep apnea. There are two big macro trends driving CPAP use, says Chief Executive Mick Farrell.
The first is the popularity of weight-loss drugs from Novo Nordisk and Eli Lilly. In earlier days, investors worried treating obesity would reduce rates of sleep apnea. Instead, patients seeking out weight-loss drugs have also discovered they have sleep apnea. And, as it turns out, these patients are more likely to start — and continue — CPAP therapy.
And, importantly, Big Tech is jumping on the sleep apnea bandwagon. Smartwatches from Samsung and Apple can now detect signs of sleep apnea. Farrell expects Garmin, Alphabet's FitBit and others, to follow suit. This would improve rates of obstructive sleep apnea diagnoses.
ResMed stock surged 7.1% to 256.07. Shares broke out of a flat base with a buy point at 255.18, according to MarketSurge.
ResMed Stock: Easier Comps Help Beat
During the September quarter, ResMed's sales climbed 11% to $1.22 billion and beat the Street call for $1.19 billion. Adjusted earnings came in at $2.20 per share, surging 34% to top expectations for $2.05 per share, according to FactSet.
"It was performance across the board," Farrell, ResMed's CEO, said in an interview with Investor's Business Daily. "It was really hard to find fault with anything. We had double-digit growth in all products, all regions and really solid 11% growth across the company."
Sales growth accelerated from 10% growth in the fiscal fourth quarter, thanks to an easier year-over-year comparison, Needham analyst Mike Matson said in a report.
"The beat was driven by strong performances across the board, primarily by double-digit global device growth (roughly $30 million of the beat), with U.S. devices accelerating to 11% growth from 5% last quarter (albeit off an easier comp) and 9% constant currency growth in Europe, Asia and other markets," William Blair analyst Margaret Kaczor Andrew said in a report.
Weight-Loss Worries Could Arise Again
She acknowledges the weight-loss bonanza from Novo and Lilly isn't over. Lilly is looking to gain approval for its GLP-1-focused drug, tirzepatide, as a treatment for obstructive sleep apnea.
"While the GLP-1 overhang could resurface in the near-term as investors digest future developments, we believe strong top- and bottom-line results moving forward can continue to drive outperform as they have in recent quarters," she said.
Still, ResMed stock is working on a recovery. After hitting a recent low at 179.42 on June 24, shares have rebounded more than 33% as of Thursday's close.
Andrew reiterated her outperform rating on ResMed shares.
"With catalysts to come from margin expansion, new product launches, and the recent resolution to the competitive consent decree, we believe the fundamentals in this durable medtech growth story remain positive," she said.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
