On Tuesday, William Blair maintained an Outperform rating on ResMed (NYSE:RMD), a medical equipment company specializing in products for sleep-disordered breathing. The firm anticipates a significant increase in sleep apnea and CPAP patients, driven by trends in GLP-1s and technological advancements, expecting this surge to begin as early as 2025.
According to management's projections, current consensus growth estimates for ResMed may be understated by 50-150 basis points. This underestimation, coupled with potential margin expansion, could result in double-digit growth in the company's bottom line over the next three to five years.
ResMed's stock has seen a nearly 40% rise in the last year, bolstering management's confidence in the market's strength and the positive impact of GLP-1s on their business. This confidence is supported by a meta-analysis encompassing over 811,000 patients, which suggests that GLP-1s could serve as a beneficial tailwind. This marks a shift from the previous year's stance, where management expected GLP-1s to have a neutral effect on the company.
The management team at ResMed is now focusing on the potential for a significant uptick in patient numbers, spurred by heightened awareness and possible GLP-1 label expansion into the treatment of sleep apnea. They foresee that the standard care could evolve to include both GLP-1s and CPAP therapy together.
ResMed's optimistic outlook is based on the premise that increased recognition of sleep apnea will lead to an 'explosion of potential patients.' This expected growth in patient numbers is seen as a direct result of the growing trends in GLP-1 usage and advancements in technology, which are likely to impact the standard of care in the field.
In other recent news, ResMed Inc. has reported strong fourth-quarter results for fiscal year 2024, with a 9% increase in group revenue reaching $1.22 billion. The company's growth was mainly driven by robust mask sales in the United States and a favorable product mix.
Despite rising freight costs and potential impacts on margins, the gross margin for the quarter increased by 338 basis points compared to the previous corresponding period, reaching 59.1%. However, analysts from CLSA and RBC Capital have expressed caution regarding weaker device growth and uncertainties surrounding long-term competition in the market.
CLSA has increased the price target for ResMed to AUD35.00, maintaining an Outperform rating on the company's stock. On the other hand, RBC Capital has updated its outlook on ResMed, increasing the price target to AUD206.00 while maintaining a Sector Perform rating. The revisions by both firms reflect recent developments and the company's strong fourth-quarter performance.
ResMed also reported a 10% increase in its quarterly dividend to shareholders. The company reduced its debt by $300 million and repurchased 232,000 shares for $50 million. Looking forward, ResMed plans to invest in research and development, pursue acquisitions, and continue its share buyback program.
InvestingPro Insights
As ResMed (NYSE:RMD) continues to capture the market's attention with its growth prospects, key financial metrics from InvestingPro provide a clearer picture of the company's current standing. ResMed's market capitalization stands robust at $35.21 billion, reflecting its significant presence in the medical equipment industry. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is 34.65, suggesting that investors are willing to pay a premium for its earnings potential.
InvestingPro Tips highlight that ResMed has a commendable track record of raising its dividend for 12 consecutive years, indicating a reliable return for income-focused investors. Additionally, two analysts have recently revised their earnings expectations upwards for the upcoming period, signaling confidence in the company's financial performance. It's worth noting that ResMed operates with a moderate level of debt, which may provide financial flexibility in pursuing growth initiatives.
InvestingPro offers a wealth of additional insights, with 15 more InvestingPro Tips available for those interested in a deeper dive into ResMed's financial health and market position. These tips, along with real-time metrics, can be found at https://www.investing.com/pro/RMD, offering valuable information for investors considering this stock.
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