Macro Intelligence: ResMed's strong Q4 earnings propel shares to one-year high

Article written by Juliette Saly (ausbiz)

Deep dive into ResMed

ResMed (NYSE: RMD), (ASX: RMD) beat market expectations with its Q4 numbers.

Revenue in the quarter increased by 9% to US$1.2 billion. On a constant currency basis, revenue rose 10%.

ResMed quarterly financial results comparison

Income from operations increased 38%, while earnings per share came in at US$1.98. The Q4 dividend was increased by 10% to US$0.53. Over the year, ResMed reported an 11% increase in revenue to US$4.7 billion.

ResMed key financial metrics summary

Breathing new life

Mask sales saw a significant 15% increase compared to last year, driven by successful resupply programs and strong demand for the new AirFit F40 mask. This new mask is a direct competitor to Fisher & Paykel Healthcare’s smallest and lightest mask, the Nova Micro.

The result was well received by the market, with ResMed hitting a one-year high on the ASX after its earnings, despite the global market sell-off.

Impressive share performance

Technical data from ASX TradeMatch shows ResMed is in a long-term bullish pattern, with the 5-day moving average of the stock price above the 50-day moving average and the 200-day moving average trending higher.

Shares in both Australia and the US have risen close to 75% over the past five years. They’re up 30% since the lows of 2023 when ResMed was hit by short-sellers worried the take-up of GLP-1 drugs to control weight would lessen demand for its sleep apnoea devices, after trials from the drugmakers Eli Lilly and Novo Nordisk showed they reduced obstructive sleep apnoea.

ResMed daily chart

The elephant in the room

Addressing the so-called “elephant in the room”, ResMed CEO Mick Farrell told ausbiz he sees the threat posed by weight loss drugs as an opportunity.

Farrell said a ResMed study of more than 800,000 patients who used weight loss drugs found they were 10.7% more likely to turn to a ResMed or equivalent therapy because more patients were being brought into the system. “They’re not a headwind, they’re a tailwind,” Farrell told ausbiz.

Capturing new patients

“And the question is for ResMed, how well can we capture all these new patients that are on GLP-1 drugs and telling their GP ‘I think I have a sleep and breathing problem’?” Meanwhile, Roger Montgomery from Montgomery Investment Management exercised a degree of caution over the data, saying “It sounds a little like the manufacturer of black t-shirts saying black t-shirts cure cancer…. The findings are promising but they lack statistical rigour.”

Is ResMed a Buy?

On Monday, 5 August, when equity markets sold off across the globe on recession fears, ASX-listed shares of ResMed were the best performer on the market, rising as much as 7% to A$34.02 intraday, their highest level in a year.

Analysts' reactions

Analysts are scrambling to rerate ResMed after its Q4 results, with both the US and Australian listed shares rated a “BUY”.

JP Morgan has lifted its price target on the medical equipment maker to A$37 from A$34.50. The broker sees 20% EPS growth for ResMed as strong mask sales, rising prices, and operating efficiencies continue.

Strong growth projections

Macquarie lists the stock as Outperform and raised its target price to A$36.25 from A$35.40. Analysts at Macquarie say strong growth in mask sales highlights the "strength of the installed base," and expect existing patients to represent around 80% of total mask and accessories revenue.

Ord Minnett has kept its rating at Accumulate but increased its target price to A$35.40 from A$33 due to ResMed's 3% increase in EPS forecasts for FY25 and FY26.

Meanwhile, Citi raised its price target on the stock by 13% to A$34 and Wilsons increased its target by 12% to A$40.25.

ResMed analyst ratings

Consensus on ResMed

The average recommendation on ResMed is a BUY with an average price target of A$36.58, according to Refinitiv data. That’s a near 12% upside from Monday’s closing price and suggests current long-term growth of 13.44%.

When it comes to NYSE-listed shares, analysts also have a BUY recommendation with an average price target of US$224.46.

ResMed analyst ratings and price target trends