Pat McKeough responds to many personal questions on potential stock picks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle.
This week, an Inner Circle member asked about a medical products stock that specializes in breathing and sleeping problems. This U.S. firm, which makes equipment to deal with respiratory disorders such as sleep apnea, is growing through acquisitions and the development of new products.
Q: Could I have your recommendation on ResMed? Thanks.
A: ResMed Inc., (symbol RMD on New York; www.resmed.com), develops, makes and distributes medical equipment for treating, diagnosing and managing respiratory disorders, such as sleep-disordered breathing (SDB), which includes obstructive sleep apnea and other similar conditions.
There is growing awareness that sleep-disordered breathing can exacerbate a wide range of health problems, including cancer and diabetes
The company markets its products in over 70 countries through wholly owned subsidiaries and independent distributors.
ResMed continues to buy other small firms that add to its product lineup. In July 2011, it purchased BiancaMed, an Ireland-based medical-technology company that makes devices for monitoring sleep and breathing. BiancaMed’s SleepMinder product uses a motion sensor to track breathing and movement without being in physical contact with the subject.
In addition, ResMed recently bought Germany-based Grundler GmbH, which develops humidifiers that are used for medical purposes. These products can be combined with a wide range of medical ventilators, including neonatal and pediatric devices. ResMed will keep Grundler’s existing staff and facilities, and the business will become part of ResMed’s newly created respiratory-care division.
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Acquisitions help increase ResMed’s revenue by 10%
In all, ResMed spent $53.3 million on acquisitions in its 2012 fiscal year, which ended June 30, 2012. These businesses helped push up ResMed’s revenue by 10.1%, to a record $1.4 billion from $1.2 billion in fiscal 2011. The company gets 55% of its revenue from outside the U.S.
Earnings rose 12.2%, to $254.9 million from $227.0 million a year earlier. Earnings per share rose 18.8%, to $1.71 from $1.44, on fewer shares outstanding.
In addition to acquisitions, ResMed aims to fuel its growth with new products. In fiscal 2012, its research spending rose 19.3%, to $109.7 million (or 8.0% of revenue) from $92.0 million (or 7.4% of revenue) in 2011.
As well, the company will start paying quarterly dividends of $0.17 a share in September 2012. The annual rate of $0.68 yields 1.8%.
In the most recent Inner Circle Q&A, Pat assesses the company’s ability to keep ahead of the competition with new products and the risks of growing by acquisition. He also looks at whether the share price, which has gained 47% since the start of the year, can keep rising. He concludes with his clear buy-hold-sell advice on this stock.
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Do you believe medical and pharmaceutical stocks will be an area of growth as the baby boomers age? If so, what do you think is the key factor in picking individual stocks in this industry? Have you had success with these stocks? Let us know what you think in the comments section below. Click here.
This stock grows by relieving sleeping and breathing disorders. [Tweet this]
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