Goldman Sachs has initiated coverage on Resmed (RMD) with a “Buy” rating and a 12-month price target of A$48.90, implying a 30% upside. The positive outlook is driven by several key factors, including robust growth in Continuous Airway Pressure Therapy (CPAP) patients, market share gains in obstructive sleep apnea (OSA) masks, and a strong operating margin expansion.
CPAP Growth and Market Share Gains
One of the main drivers behind the optimistic outlook is Resmed’s continued growth in CPAP therapy, which is benefitting from increased awareness of Obstructive Sleep Apnea (OSA). With more people recognizing the importance of sleep apnea treatment, the number of CPAP patients is expected to rise significantly. Additionally, Resmed is gaining market share in the OSA mask segment, which adds further momentum to its growth story.
Operating Margin Expansion
Resmed’s solid cost management and improving product mix are expected to contribute to the company’s operating margin expansion. After an impressive period of growth in the US device market (with a compound annual growth rate of around 20% from FY21-FY24), Resmed is poised to accelerate growth across its entire product portfolio. This is largely driven by key investments aligned with the company’s 2030 strategy.
Strong Revenue Growth and Product Innovation
Resmed has stepped up its research and development efforts, with several innovative mask and accessory launches scheduled for the second half of CY24. As a result, the company is expected to significantly outperform consensus revenue growth estimates for masks, with projections of 2.4%, 6.6%, and 10.7% ahead of the Visible Alpha consensus for FY25, FY26, and FY27, respectively. Goldman Sachs is confident that Resmed will meet the top end of its FY30 revenue target, with an anticipated 8.9% CAGR from FY25 to FY30.
The Co-existence of CPAP Therapy and GLP-1 Drugs
An interesting aspect of Resmed’s strategy is its perspective on GLP-1 drugs for treating OSA, such as Zepbound, a drug developed by Eli Lilly. While these drugs are emerging as a potential treatment, Goldman Sachs believes they will co-exist with CPAP therapy based on current clinical data and payor policies. This means that, while GLP-1 drugs may gain traction, CPAP therapy will remain a mainstay in the treatment of OSA, continuing to drive demand for Resmed’s products.
Further supporting this thesis is the strong engagement with Resmed’s patient app, myAir, which is helping patients stay on track with therapy compliance. This momentum in patient engagement and the increased rate of OSA diagnoses could create a further tailwind for the company.
Financials and Valuation
Goldman Sachs’ forecast for Resmed’s EPS in FY25, FY26, and FY27 is 0.2%, 3.2%, and 4.5% higher than consensus, respectively. This is largely driven by higher revenue from masks and devices in the Rest of the World (ROW) market. The company’s 12-month target price of A$48.90 is based on a blended 50/50 approach using a 10-year DCF and NTM EV/EBIT (26.4x). This suggests significant upside potential, with Resmed well-positioned to deliver strong growth over the next year.
Risks to Watch
As with any investment, there are risks to consider. For Resmed, key risks include potential reimbursement pressures in the US, a reduction in therapy compliance, and the possibility of a product recall that could impact its market share. However, Goldman Sachs is confident in Resmed’s ability to navigate these challenges, given its strong market position and ongoing innovation.
Conclusion
Resmed’s future looks bright, with strong growth in CPAP therapy, a solid market position in OSA masks, and a promising pipeline of product innovations. With a 30% upside to the target price, Resmed is an attractive investment for those looking to tap into the growing demand for sleep apnea treatments.
