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ResMed Inc RMD

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ResMed’s FVE Up 68% After Factoring in Potential Opportunity of Philips’ Recall and Stronger Rebound

Shane Ponraj, CFA Equity Analyst

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.

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Company Profile

Business Description

ResMed is one of the largest respiratory care device companies globally, primarily developing and supplying flow generators, masks and accessories for the treatment of sleep apnea. Increasing diagnosis of sleep apnea combined with ageing populations and increasing prevalence of obesity is resulting in a structurally growing market. The company earns roughly two-thirds of its revenue in the Americas and the balance across other regions dominated by Europe, Japan and Australia. Recent developments and acquisitions have focused on digital health as ResMed is aiming to differentiate itself through the provision of clinical data for use by the patient, medical care advisor and payer in the out-of-hospital setting.

9001 Spectrum Center Boulevard
San Diego, CA, 92123
T +1 858 836-5000
Sector Healthcare
Industry Medical Instruments & Supplies
Most Recent Earnings Jun 30, 2021
Fiscal Year End Jun 30, 2022
Stock Type Aggressive Growth
Employees 7,970