ResMed Earnings: Solid Device Sales and EBIT Margin Expansion

Shares in narrow-moat ResMed are modestly undervalued following a solid second-quarter fiscal 2025. Underlying EBIT of USD 436 million was 7% higher than first-quarter fiscal 2025, with sales up 5% on increased product demand and underlying EBIT margin up a strong 81 basis points to 34%. Selling, general, and administrative expenses were a highlight, decreasing by 67 basis points sequentially to 19% of revenue. Overall, second-quarter revenue and earnings broadly met our forecasts, and we leave our long-term estimates largely unchanged. Our forecast five-year revenue and EBIT compound annual growth rates are 8% and 10%, respectively, broadly consistent with ResMed’s five-year guidance for high-single-digit revenue growth and higher earnings growth. We raise our fair value estimate 2% to USD 275, or AUD 44 per CDI at current exchange rates, largely due to the time value of money. The US-listed shares trade at a 6% discount to our fair value estimate, versus 9% for the Australian CDIs. We are likely more optimistic than the market on ResMed’s ability to take advantage of growing awareness of sleep apnea.