ResMed: Another Positive Quarterly Surprise?

This story features RESMED INC. For more info SHARE ANALYSIS: RMD

Tomorrow’s release is expected to reveal another strong quarter from ResMed.

-Management re-jig a positive for ResMed
-Anecdotal data suggesting a strong quarter
-Weight loss drugs mightn’t be so bad
-What the brokers say

By Danielle Ecuyer

Strategic realignment starts to pay off

CPAP machines and masks manufacturer ResMed ((RMD)) is due to report December quarter earnings on January 31 (tomorrow) with an 8.30am conference call before the open in Australia (January 30 in the US where the company is listed too).

ResMed undertook a major reset in 2023 when management outlined 2030 strategic goals, including a new operating model. Management roles have been restructured across product functions rather than geographies for better end-patient engagement.

Goldman Sachs, which recently re-initiated coverage on the stock, highlights the application of AI to raise obstructive sleep apnoea (OSA) awareness and compliance with therapies, as well as growing the business-to-business channel into other private pay markets outside the US.

These include China, India, and Australia, with subscription models offering increased payment optionality. ResMed has also increased the cadence of new product launches for better outcomes, including improved comfort.

The upcoming quarterly update is expected to showcase ongoing positive impacts from the strategic shift.

Goldman Sachs highlights ResMed should continue to benefit from growth in Continuous Positive Airway Pressure therapy, known as CPAP devices, as awareness of OSA rises.

Market share in masks, the products that deliver airflow from CPAP, is also expected to advance. As the product mix shifts to more digital investment, margins are expected to continue improving.

The analyst stresses management has delivered “stellar US devices growth” of around 20% per annum between FY21-FY24,

The outlook for ResMed’s margins

UBS estimates the company’s gross margin will advance 20bps to 59.9% from the previous quarter. This analyst highlights the market offers insufficient credit for operational cost controls exhibited over the last few quarters.

Jarden is looking for a gross margin in the December quarter of 59.4% versus 59.2% in the previous quarter, which is within management’s guidance range of 59%-60%. This analyst states gross margin improvements are expected more in the June quarter of FY25.

Channel checks from Jarden and data observed from Citi Research Innovation Lab point towards a strong operational quarter.

Citi notes US app downloads grew 17% year-on-year, with consensus forecasts for December quarter US device sales growth of 8.2% versus the broker’s estimate of 10%.

Ex-US app downloads advanced 33% annually versus consensus sales growth of 7.1% for ex-US devices, and Citi’s estimate of 9.3% growth.

US monthly users lifted 22% year-on-year, with this analyst emphasising the US 12-month utilisation rose to 87% in December 2024 from 80% the previous year. The rate measures monthly active users/cumulative downloads over 12 months.

Jarden’s channel checks suggest ResMed’s US device growth of 10% for 2Q25, with momentum sustained into January.

This analyst believes growth is being supported by AirSense 11 moving off allocation, while home test providers are alleviating pressure on “bottlenecks” in sleep labs. Physicians are also showing a strong preference for ResMed.

Jarden is currently forecasting mask growth of 14.8% for the December quarter against consensus of 11.2%.

UBS points to concerns investors may have over cost increases associated with freight.

GLP-1’s a head or tailwind for ResMed?

The contentious topic of the impact of GLP-1s from Eli Lilly and Novo Nordisk on the treatment of sleep apnoea via weight loss saw ResMed’s share price fall near $20 in the third quarter of 2023. Shares have since recovered to above $40.

Over the last six months, the narrative has shifted 180 degrees, with brokers stressing GLP-1 drugs can “co-exist” with CPAP therapy. Goldman Sachs points to published clinical data and payor policies supporting this view.

UBS makes a similar conclusion, noting the treatment of obese patients using Lilly’s Zepbound for OSA, recently approved by the US FDA, can assist new business development for ResMed.

IQVIA data revealed people with an OSA diagnosis and a GLP-1 prescription are more likely to start CPAP therapy than those with only a diagnosis.

UBS states the market remains wary of weight loss medications’ impact on device and mask uptake, and improved information should help address these concerns.

Goldman Sachs states GLP-1 growth for obesity treatment is a tailwind for OSA diagnosis over the next three to five years.

Broker views diverge in the near term

Non-daily monitored broker Jarden suspects there’s upside risks to its $36.60 target price as confidence improves around GLP-1 impacts and gross margins might improve beyond the analyst’s 60.6% target for FY29.

Jarden has a Buy-equivalent rating on the stock and highlights, as gearing turns to a net positive from cash flow generation, management may offer more definitive commentary about the share buyback.

Goldman Sachs re-initiated coverage with a Buy rating and a $48.90 target price, noting the current share price values the company below the last five to ten years’ average price-to-earnings multiple.

UBS makes a similar comment, stating ResMed shares are trading at 23x FY26 earnings. Although this represents a 40% premium to the ASX200, it remains below the pre-covid average by -60%. Multiple expansion remains possible, but more clarity is needed on GLP-1s’ impact with wearables and revenue.

UBS has a Hold-equivalent rating with a US$255 price target (for the US listed shares, which compare 10 to one in Australia).

Citi also has a Hold-equivalent rating with a $38 target price.

In contrast, Ord Minnett recently revised earnings models for healthcare companies, including ResMed, for forex assumptions over the December quarter. This broker’s target price lifted to $43.90 from $40, and the stock was upgraded to Buy from Hold.

ResMed remains a top stock pick in the sector, with the analyst forecasting double-digit earnings growth over FY25 and FY26.

Brokers point to possible risks from US reimbursement pressures, product recalls, lower therapy compliance, and GLP-1s allowing OSA patients to cease therapies.

On current consensus forecasts, derived from FNArena’s daily monitored brokers, ResMed is projected to grow earnings per share in USD by 36.2% in FY25, followed by 9.1% growth in FY26. On that basis, the PE ratio (translated into AUD) is currently 26.4x for FY25. That multiple falls to 24.2x on FY26 projections.

The author owns ResMed shares.

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