Why is the ResMed share price surging again and up 14% in two sessions?

A recent update has gone down exceptionally well with investors.

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The ResMed Inc. (ASX: RMD) share price is storming higher again on Monday.

At one stage today, the sleep disorder treatment company's shares were up as much as 6% to $33.50.

Its shares have eased back a touch since then but remain up 4% at the time of writing.

This means that the company's shares are now up 14% over the last two trading sessions.

Why is the ResMed share price storming higher?

The catalyst for the strong buying has been the release of an impressive quarterly update from the company at the end of last week. This led to US-listed ResMed's shares racing a massive 18% higher on the NYSE on Friday night.

As a reminder, ResMed posted a 7% increase in revenue to US$1.2 billion for the three months ended 31 March. Management advised that this reflects increased demand for sleep devices, as well as strong growth across its mask product portfolio.

Also catching the eye of investors was the company's gross margin, which improved more than expected. ResMed's gross margin widened by 260 basis points to 57.9% on a GAAP basis and 240 basis points to 58.5% on a non-GAAP basis. This was ahead of the consensus estimate for a gross margin of 57.6%.

As a result of this solid top-line growth and margin expansion, ResMed's income from operations grew 25% to US$374.6 million and its diluted earnings per share increased 29% to US$2.04 per share.

ResMed's chair and CEO, Mick Farrell, commented:

ResMed's strong third-quarter fiscal year 2024 results reflect robust patient and customer demand for our products and software solutions, leading to double-digit mask and accessories revenue growth along with ongoing operational efficiencies to drive margin improvement and increased profitability, resulting in double-digit growth in both operating profit and earnings per share.

Broker reaction

A number of Australia's leading brokers have responded positively to the update.

For example, the team at Citi has reiterated its buy rating on the company's shares with an improved price target of $36.00. Based on where the ResMed share price currently trades, this implies a potential upside of 10% for investors.

Elsewhere, Macquarie has retained its outperform rating with an improved price target of $34.85, and Morgans has held firm with its add rating and lifted its price target to $34.11.

It is also worth noting that Goldman Sachs' US team has just named the company in its High Quality Stock basket. It feels that investors should be buying quality stocks now that rate cuts are likely to be delayed.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has positions in ResMed. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group, Macquarie Group, and ResMed. The Motley Fool Australia has positions in and has recommended Macquarie Group and ResMed. 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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