The ResMed Inc. (ASX: RMD) share price was a very positive performer in October.
During the month the medical device company’s shares recorded an impressive 16.1% gain. This compares to a 1.9% gain by the ASX 200.
Why did ResMed shares smash the market in October?
Investors were buying ResMed’s shares last month after the release of its first quarter update in the final week of the month.
Expectations were already high for the company, but it well and truly smashed them out of the park.
During the first quarter, ResMed reported a 10% increase in revenue to US$751.9 million. This was well ahead of the market consensus estimate of US$709.47 million.
But things were even better on the bottom line thanks to favourable product mix changes and foreign exchange rates.
ResMed’s net income increase by 48% compared to the prior corresponding period to US$178.4 million.
And while this was boosted by the impact of legal settlement expenses in the prior year, its non-GAAP net income grew almost as strongly. Non-GAAP net income grew by 37% to US$185.4 million and earnings per share also grew 37% to US$1.27.
ResMed’s earnings per share were also notably ahead of the market consensus, which stood at US$1.03 per share.
What were the drivers of its strong result?
ResMed’s strong growth in the first quarter was driven by robust demand for its core sleep treatment products and increased demand for ventilators due to the COVID-19 pandemic.
ResMed’s CEO, Mick Farrell, commented: “Our first quarter results reflect solid performance and positive trends across our business. During the quarter, we continued to support the global COVID-19 pandemic response, providing ventilators, masks, and circuits to countries in need around the world.”
“In our core markets of sleep apnea, COPD and asthma, we are encouraged by the sequential improvement in new patient volume, as well as the ongoing strong adoption of our mask and accessories resupply programs,” he added.
How did brokers react?
The result went down well with brokers and saw both UBS and Credit Suisse upgrade its shares to buy ratings. The latter has a $31.00 price target on ResMed’s shares, which implies potential upside of almost 11% even after October’s strong gains.
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Returns as of 6th October 2020
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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