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Why ResMed (RMD) Stock Is Falling Today

NEW YORK (TheStreet) -- ResMed (RMD) shares are down -3.6% to $50.56 on Monday following a weekend report from Barron's that suggests the company stock could dip as much as 15% if the government decides to lower Medicare and Medicaid spending on home medical care products.

The Centers for Medicare & Medicaid Services is considering higher pricing and utilization scrutiny of various home use medical equipment like ResMed's continuous positive airway pressure (CPAP) face masks, according to the report.

"On the table are proposals to require prior approval for CPAP treatment and to bundle all payments into a fixed monthly fee per patient... If such economies end up affecting ResMed's profit growth, the stock could settle to a market multiple, which would send the share price down by at least 15%," said the publication.

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TheStreet Ratings team rates RESMED INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate RESMED INC (RMD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • RMD's revenue growth has slightly outpaced the industry average of 3.6%. Since the same quarter one year prior, revenues slightly increased by 3.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • RMD's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 5.20, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, RESMED INC's return on equity exceeds that of both the industry average and the S&P 500.
  • RESMED INC has improved earnings per share by 8.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, RESMED INC increased its bottom line by earning $2.10 versus $1.72 in the prior year. This year, the market expects an improvement in earnings ($2.48 versus $2.10).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Health Care Equipment & Supplies industry average, but is less than that of the S&P 500. The net income increased by 6.0% when compared to the same quarter one year prior, going from $84.91 million to $89.97 million.
  • You can view the full analysis from the report here: RMD Ratings Report
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