June 4, 2008 - ResMed Inc. (RMD-NYSE) makes and distributes medical equipment used to diagnose and treat respiratory disorders that occur during sleep, such as sleep apnea. Most of its products treat obstructive sleep apnea (OSA), a condition in which a patient's air flow is periodically obstructed, causing multiple disruptions during sleep that lead to daytime sleepiness and possibly conditions such as high blood pressure. Its products include air-flow generators, face masks, diagnostic products, and accessories. ResMed sells directly and through distributors worldwide to home health equipment dealers and sleep clinics.

The stock has been range bound over the last couple of years, currently trading near the bottom price (range has been between $37 and $56). With decent earnings growth projected by analysts, it may be time for this stock to get off the bottom and move upward again.

Since 1996, earnings have gone up every year. Starting at 18 cents a share back then to last year's $1.38, the increase has been slow and sure. Over the last 5 years earnings improved by 21% a year, on average while sales were going up by 25.2% a year, on average. Over the next 5 years, look for 17.5% annual growth in earnings, on average, with revenues ringing up 14.5% annual increases, on average. Analysts put this year's bottom line at $1.46 a share and next year's at $1.80. Sales were $716 million last year. Look for $825 million this year and $975 million next year.

ResMed earned $29.7 million, or 38 cents per share in its most recent quarter. That compared with a loss of $15.4 million, or 20 cents per share, in the year-ago period, when ResMed took a big charge for its voluntary withdrawal of 300,000 flow generators used to treat sleep apnea which is why the stock pulled back from $56. Revenue jumped 16 percent to $212 million for the quarter ended March 31, in line with the Reuters Estimates forecast of $211 million. Much of the sales increase came from outside the U.S., jumping 27% to $112.2 million from a year ago. Domestic sales were up only 5% compared to the same quarter last year, to $99.6 million.

The U.S. Centers for Medicare and Medicaid Services said in March it would subsidize continuous positive airway pressure (CPAP) devices to elderly and disabled people who have shown they need them by testing themselves at home. "This decision will complement the existing channel and allow patients the option to be diagnosed in their homes," San Diego-based ResMed said. "In time, the introduction of home sleep testing as a complement to the current diagnostic pathways should vastly increase patient access to therapy."

ResMed and bigger rival Respironics Inc. control about 80 percent of the $2 billion U.S. market for sleep breathing devices, a market growing rapidly as people become more aware of the links between sleep disorders and heart disease and diabetes.

Several new products are ready for delivery. The S8 II flow generator platform in the U.S. market, already being sold abroad with high client satisfaction. A redesigned nasal pillow mask called the Swift LT is coming soon, an addition to nasal pillows available.

More numbers: Debt is 10% of capital. Return on Equity is 11.6%. Current assets dwarf current liabilities by 5 to 1. Net profit margin is 15%. There is no dividend. Officers and directors own about 4.5% of the stock. Two institutions own about 13%. Market cap is $3.2 billion with 77.264 million shares outstanding.

ResMed should benefit from more recent attention to sleep disorder breathing by the medical pros. Also, insurers are beginning to pay for home sleep testing which should increase demand as patients now have access to paid therapy.

Dig deeper into RMD if you're looking for a niche player in the medical world. Earnings have been consistently good (with the exception of the recall last year), and future growth is above average for both earnings and sales. Of course, another recall or changes in payments from insurers can change that in a hurry.

- Company Web site: www.resmed.com

- Ted Allrich