Not Everyone Is Negative About ResMed

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This story features RESMED INC.
For more info SHARE ANALYSIS: RMD
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

Last week FNArena cautioned some in the market were anticipating sleep disorder group ResMed ((RMD)) would deliver a disappointing quarterly profit result (see ResMed Expected To Deliver Subdued Quarterly, 7/2/08) and the company did exactly that, its profit of US$26.9 million being below market consensus.

As a consequence there have been earnings downgrades in the market, reflecting what GSJB Were notes is a risk the company’s market in the US has shifted to a lower sales growth platform of 10-15% from 15-20% previously.

To reflect the quarterly result the broker has cut its estimates in FY08 by 7.4% and in FY09 by 6.8%, while Macquarie has dropped its forecasts by around 13% in each year and UBS has made more modest cuts of around 3% in both years.

Of more significance than the earnings changes are the changes in ratings, as following the quarterly a number of former supports have lost some of their confidence in the group.

Both Credit Suisse and Macquarie have downgraded the stock to Neutral from Outperform/Buy previously, both to reflect the likely lower earnings flowing through given the slower US sales.

ABN Amro agrees the outlook is more difficult and expects the tougher market conditions will remain in place through FY08 at least, leading the broker to reiterate its Hold rating.

Citi has been more drastic in reducing its rating to Sell from Hold, arguing the stock is overvalued at current levels given the sales outlook. While some upside remains from a potential bid from a player looking to further rationalise the sector and from a positive ruling next month on home diagnosis, the broker points out neither of these are certain and are offset by the poor earnings prognosis.

Others continue to rate the stock as a Buy though, UBS suggesting comparables sales figures are now entering a period of easier comparables and this should translate into better quarterly performance, while JP Morgan expects some upside as the company releases new products onto the market.

GSJB Were also remains positive, seeing the second quarter as the bottom of the cycle for sales growth and suggesting there is now value in the stock at current levels as the downside risks appear fully priced in at current levels.

Overall the FNArena database shows the stock as rated as Buy three times, Hold six times and Sell once, compared to five Buys and five Holds prior to the 2Q result. Price targets have also been revised lower, the database showing an average target price now of $5.46, down from $6.05 last week.

Shares in ResMed today are higher despite last week’s disappointing result and as at 11.05am were trading up 17c at $4.82.

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