11 October 2024
Managed accounts? Simple.
For advisers and their clients, are managed accounts simply a better way to invest? Read more to find out why managed accounts have become so popular with investors and advisers. Read more
The stock in focus this month is ResMed (RMD). The Healthcare sector has been a strong performer for a significant period, as investors have been attracted to the non-discretionary nature of the earnings and the thematics of a sector where demographics and technical developments are providing strong tailwinds.
ResMed is a healthcare equipment company that develops, markets and manufactures medical products that deal with respiratory disorders, with their main product line focussed on sleep-disordered breathing. Sleep-disordered breathing has been an increasing problem, particularly in the large US market where the correlation to obesity plays a large role.
Seen as an innovator in what is becoming a more competitive niche, all eyes were on RMD’s recent quarterly report after the launch of their new product line the AS10 flow generator. The market was not disappointed with sales growth of 10% for the quarter, based on 20% growth in flow generator sales on the back of the new product line. The stock rallied strongly on the back of the news, however it will be important to watch future releases to determine how much of the growth is attributable to existing users upgrading to the new AS10 platform.
Also in RMD’s favour is after a period of price cutting as the old-model system were rundown, we should see improved margins on a comparison basis and continued strong growth in flow generator sales, given the early stage of the release of the Aircurve 10 system and the positive reception it has initially received from customers.
As a US incorporated company, RMD reports in USD so a continuation of the recent strong decline in the AUD will also underpin not only earnings growth but also growth in shareholder returns in AUD. As it produces mostly foreign earnings, no franking credits are applied to earnings. Therefore RMD has chosen to manage capital returns to shareholders through conducting share buybacks rather than paying significant dividends. With cash heading towards the $1 billion mark we see an ongoing buyback program supporting EPS growth and in turn share price growth for the medium term.
