Analyst Note| Shane Ponraj, CFA |
Narrow-moat ResMed’s fiscal 2021 EBIT of USD 904 million was in line with our expectations, but the real focus of the result was current unprecedented demand due to Philips’ recent product recall. As a result, management guided to USD 300 million-USD 350 million in additional global device revenue in fiscal 2022 on top of originally planned growth. The midpoint of guidance alone implies a 21% uplift on fiscal 2021 global device sales excluding coronavirus-related ventilator sales. The opportunity to structurally gain market share over the next two years is more significant than we previously credited and is the largest driver of the 68% increase in our fair value estimate to USD 250, or AUD 34 at current exchange rates. Roughly half of the upgrade is due to an increase in our top-line forecasts, and the remainder due to associated scale efficiencies being realized. However, following transfer of coverage, shares still trade at a 7% premium to our revised fair value estimate. While ResMed has a long growth trajectory in a structurally growing market, we don’t see sufficient margin of safety at the current price.