Sleep Device Sales Falter in ResMed’s Third Quarter but Has Little Bearing on Our Long-Term View

Coronavirus continues to suppress sleep apnea diagnosis rates and hence Resmed’s sleep device sales in third-quarter fiscal 2021, but still broadly track our full-year expectations for a pandemic-softened showing. However, better-than-expected mask sales--in combination with a time value of money adjustment--lead us to upgrade narrow-moat Resmed’s fair value estimate by 3% to USD 149. Our AUD equivalent valuation is unchanged at AUD 19, given the recent strength of the AUD. ResMed guided to low-single-digit sequential revenue growth in the fourth quarter and still benefits from reduced travel expenses. Accordingly, we increase our underlying fiscal 2021 EBIT forecast by 4% to USD 907 million, but our five-year EBIT CAGR forecast is unchanged at 9%. While ResMed stands to benefit from structural trends in respiratory and digital health, as well as the launch of its next generation AirSense 11 product in the U.S. later this calendar year, shares continue to screen as overvalued at current levels.