The ASX 200 company selling everything it makes due to its major competitor being out of the market: fundie

S&P/ASX 200 Index (ASX: XJO) share ResMed Inc (ASX: RMD) is currently benefitting from the situation in its sector.

The ResMed share price has been on quite a journey during 2022. It fell by more than 20% from the start of the year to May 2022. However, since the May lows, it has gone up 20%. It’s currently down around 7% in the calendar year.

While some businesses are struggling in the current environment with rising interest rates and elevated inflation, ResMed is one company that is still doing well. Part of that is down to a competitor having to recall its products.

In a recent profit update, the ASX healthcare share advised investors that for the three months to June 2022, its revenue increased by 4% and (net) income from operations increased by 6%.

The end of the fourth quarter meant that the business could tell investors about its full-year result for the 12 months to June 2022. Revenue increased by 12% to $3.6 billion and income from operations grew 11%.

After seeing that, one fund manager is bullish about the ASX share.

Jun Bei Liu, fund manager from Tribeca Alpha Plus Fund, spoke to Livewire about her thoughts on the business.

Expert’s views on ResMed shares

Liu said the business’ result was in line with expectations in terms of the earnings before interest and tax (EBIT), while operating profit was 4% better than expected.

One of the key highlights for Tribeca was that United States device sales were “incredibly strong” (with 11% growth) even though it’s cycling against strong growth in the prior year.

Jun Bei Liu said that gross profit was “okay” from the ASX 200 share and in line with expectations, while cash flow was “just a tad weaker”. She explained the positive reason for that to Livewire:

It’s mainly because they do need to build some inventory. The demand has been so strong they’re just selling everything they build. They had to build a little bit of inventory just to sell through different channels.

What is the outlook for ASX healthcare share?

The fund manager likes ResMed shares and the wider healthcare sector because it’s “very defensive” and has structural growth. She doesn’t think that earnings will be hurt by economic uncertainty.

Tribeca thinks that ResMed’s outlook is “very bullish”. She pointed out that, on an earnings call, management talked about increasing production quarter on quarter, which she called “very strong”, partly due to the issues faced by Phillips, its competitor. ResMed management reportedly indicated that Phillips “won’t come back into the market for at least another 12 months”. She said that’s really good for ResMed.

Liu also pointed out that ResMed has strong pricing power, which it can use to offset the inflation on the costs side of the business.

Is the ResMed share price an opportunity?

The fund manager said to Livewire:

I would buy this stock, particularly when it has a dip on a result that is very strong, and it is giving a very bullish outlook for the next 12 months as well.

She also said that the 5% fall for the company on the day of the report was an “overreaction”.

The post The ASX 200 company selling everything it makes due to its major competitor being out of the market: fundie appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed Inc. 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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