Australia | Oct 30 2006
By Chris Shaw
In recent trading sessions Resmed (RMS) shares have rallied almost 10% to levels around $5.80 while trading volumes have been the strongest since February 2004 as turnover has averaged more than three million shares daily.
Southern Cross Equities doesn’t officially cover the stock but suggests this is an indication the market is expecting the company’s upcoming September quarterly report will surprise on the upside, an outcome analyst Stuart Roberts suggests is quite possible.
As the broker points out the company’s major competitor, Respironics of the US, recently recorded a disappointing September quarter result, potentially indicating the company was outperformed in the period by ResMed.
As well, the broker suggests the view of many in the market that ResMed would be negatively impacted by the threat of Respironics taking market share may be unfounded, as the overall market for sleep apnoea appears to be expanding still.
It points out the medical community in the US in particular is now beginning to recognise the potential links between sleep apnoea and other problems such as diabetes and heart disease, while increased corporate interest in the problem further adds to the case for a continuously widening market.
Southern Cross Equities notes US analysts are forecasting a quarterly earnings per share result of US32c, which while an increase of 23% from the same quarter last year would be below the company’s average rate of earnings growth over the past three years. Also, September is traditionally the weakest quarter for the company in terms of both revenue and earnings growth, so the broker notes a stronger than expected result for this quarter would set the company up well for the rest of the year.
The broker’s suggestion there is upside risk to the share price matches that of the brokers in the FN Arena database, as ResMed is rated as Buy twice and Hold four times with an average price target of $6.60 by those covering the company. This compares to a median share price target according to Thomson One Analytics of $6.20 and a current share price of $5.78, which is down 7c this morning in early trading.