On Tuesday, Baird initiated coverage on shares of ResMed (NYSE:RMD), a global leader in the continuous positive airway pressure (CPAP) market, with an Outperform rating and a price target of $280.
The firm's analysis indicates that ResMed is strategically positioned to benefit from growing market penetration in a stable mid-single-digit (MSD) growth market for CPAP devices.
Despite the absence of competitive recall-related share gains and pricing tailwinds, Baird anticipates that ResMed will sustain mid-single-digit to high-single-digit (MSD-HSD) revenue growth and low-double-digit to mid-teens (LDD-mid-teens) earnings per share (EPS) growth.
This forecast is based on the increasing prevalence of obstructive sleep apnea (OSA), which is expected to drive steady growth in CPAP device sales. Additionally, high-single-digit (HSD) growth in recurring revenue streams from masks, accessories, and software as a service (SaaS) offerings is projected to contribute to the company's performance.
Baird's outlook suggests that while there are risks associated with glucagon-like peptide-1 (GLP-1) therapies, the potential for near-to-intermediate term EPS upside should support ResMed's ability to maintain its premium valuation. This expectation underpins the firm's $280 price target for ResMed's stock.
In other recent news, ResMed, has been the subject of various analyst reviews following robust fourth quarter fiscal year 2024 results. The company reported a 9% growth in group revenue to $1.22 billion, primarily driven by strong mask sales in the United States. Financial firms CLSA and RBC Capital revised their price targets for ResMed to AUD35.00 and AUD206.00 respectively, reflecting the company's recent performance and market dynamics.
However, analysts have expressed caution regarding ResMed's future prospects. Needham maintained a Hold rating on the company, citing anticipated challenges in the competitive landscape and slowing growth. Wolfe Research downgraded ResMed from Peer Perform to Underperform due to concerns about potential market disruption from Eli Lilly (NYSE:LLY)'s expected introduction of a new medication for obstructive sleep apnea. In contrast, William Blair maintained an Outperform rating on ResMed, anticipating a significant increase in sleep apnea and CPAP patients by 2025.
ResMed also reported a 10% increase in its quarterly dividend to shareholders, reduced its debt by $300 million, and repurchased 232,000 shares for $50 million. The company has indicated plans to invest in research and development, pursue acquisitions, and continue its share buyback program.
InvestingPro Insights
As Baird initiates coverage on ResMed with an optimistic outlook, InvestingPro data provides a complementary perspective on the company's financial health and market position. ResMed's market capitalization stands at a robust $36.17 billion, reflecting its significant presence in the CPAP market. The company's P/E ratio is currently high at 35.4, indicating that investors may expect strong future earnings growth despite trading at a premium. This aligns with Baird's view that ResMed can sustain its premium valuation due to its strategic positioning and growth potential in the OSA market.
InvestingPro Tips reveal that ResMed has a commendable track record of raising its dividend for 12 consecutive years, suggesting a commitment to returning value to shareholders. Additionally, the company's liquid assets exceed its short-term obligations, providing financial stability and the ability to navigate market challenges effectively. These insights underscore the resilience and prudent financial management that could support Baird's positive outlook on the stock.
Investors seeking a deeper dive into ResMed's performance and potential can find additional InvestingPro Tips on InvestingPro's dedicated ResMed page, which includes a total of 16 tips for a comprehensive analysis.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.