On Friday, Needham, a notable investment firm, adjusted its outlook on ResMed (NYSE:RMD) stock, a company specializing in medical equipment for respiratory disorders. The firm increased the price target to $236, a rise from the previous target of $224, while reaffirming its Buy rating.
The adjustment came after ResMed reported its financial results for the third fiscal quarter of 2024, which surpassed consensus estimates for both revenue and earnings per share (EPS). Despite the positive outcome, ResMed experienced a deceleration in organic revenue growth, which slowed to 7% compared to 9% in the second fiscal quarter of 2024.
Needham highlighted ResMed's improved profitability, noting year-over-year increases in gross margin by 240 basis points and operating margin by 410 basis points. These improvements were attributed to a combination of factors, including pricing strategies, favorable product mix, reduced freight costs, and benefits from recent restructuring efforts.
Additionally, ResMed has updated its projections regarding the positive effects on continuous positive airway pressure (CPAP) initiation and resupply rates, which are anticipated to be influenced by patients using both glucagon-like peptide-1 (GLP-1) treatments and CPAP devices.
The investment firm's confidence in ResMed's potential to maintain mid to high single-digit revenue growth, coupled with stronger EPS growth due to margin enhancements, supports the decision to maintain the Buy rating. The new price target reflects an updated earnings per share estimate for the calendar year 2025.
InvestingPro Insights
ResMed (NYSE:RMD) has been recognized for its consistent financial performance, with the company's commitment to returning value to shareholders underscored by a notable track record of dividend growth. According to InvestingPro Tips, ResMed has raised its dividend for 12 consecutive years, demonstrating a strong and steady financial policy. Additionally, the company's cash flows have been robust enough to sufficiently cover interest payments, ensuring financial stability.
InvestingPro Data provides a snapshot of ResMed's current market position, with a market capitalization of $26.94 billion and a P/E ratio standing at 30.29. Despite trading at high earnings and EBITDA valuation multiples, the company's revenue has grown by 19.69% over the last twelve months as of Q2 2024, reinforcing the optimism expressed by Needham. Furthermore, ResMed's gross profit margin remains impressive at 55.86%, indicating efficient operations and strong pricing power.
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