ResMed’s 2019 Core Earnings In line Roll Forward FVE to USD 109

Narrow-moat ResMed reported fiscal 2019 adjusted core EPS up 4.1% to USD 3.20 from USD 3.07, in line with our expectations. Our EPS adjustments differ to those of the company. We did not anticipate the litigation provision of USD 41 million relating to a mask and accessory resupply programme, however, it does not impact our forward view. The full-year DPS of USD 1.50, up 5.6%, fell short of our expectations with the payout ratio dropping to 53% from 65% and we adjust our forecast payout ratio down to between 50% and 55% over the next five years from 65% previously. We roll forward our forecasts and consequently update our fair value estimate to USD 109 from USD 104 and to AUD 15.50 from AUD 14.90, due to the time value of money, and assuming a constant exchange rate of 0.70 USD per AUD. ResMed screens as slightly overvalued at current levels.