Australian (ASX) Stock Market Forum

RMD - ResMed Inc.

the development of drugs (Ozempic, the diabetes treatment which has become a popular weight loss drug) that have an application for sleep apnoea, not the research note, is of interest.
UBS analysts had flagged the rise of weight loss drugs as a potential headwind for the company earlier this year, and have subsequently slashed ResMed’s price target by 36 per cent to $US170, dropping the stock to a “Neutral” rating from a “Buy” rating

The analysts cited the likely regulatory success of Ozempic-like competitor drug SURMOUNT-OSA as a reason for the downgrade.

The stock no longer looks exceptional on growth versus US peers,” the note said
Still an $11B company. ... selling hasn't eased off, lately. More coming out on GLP-1 impacts..

small detail, but I noticed RMD no longer in Mirrabooka Top 20 holdings, as of August. was #9 not so long ago.
SG Hiscock High Conviction Fund buying back in, folloeing the 30 per cent retracement.
"It’s important to recognise Glucagon Like Peptide (GLP-1) drugs have been around for a while and have not been considered efficacious enough to see commercial take-up and be reimbursed for weight loss. New trials are seeking to show greater clinical benefit from using GLP-1 drugs in reducing the risk of major cardiovascular events and Obstructive sleep apnoea.

"There is still a huge amount of uncertainty around the potential clinical adoption, cost-benefit and commercial take-up of GLP-1 drugs and whether they will allow patients to stop using CPAP machines, and if so, how many.

"The share price reaction for ResMed implies that these drugs will have material uptake and reduce the long-term addressable market for CPAP. This is providing an opportunity to buy a high-quality business at a discount to its longer-term fundamental value."
Circa 2.3% of stock shorted, which is lower than it has been recently.
Chart update.
New 52 week low today. ($21.72) Closed price also.


Medtech Stocks Tumble​

There's a lot of chatter in the US and Europe about gamechanging weight loss drugs, with development led by Novo Nordisk and Eli Lilly.

Overnight, Novo Nordisk said it would stop a trial studying Ozempic to treat kidney failure in diabetes patients ahead of schedule as interim analysis showed signs of success. Its shares rallied 6.3% while peers Eli Lilly also rallied 4.5%.

There's a lot of speculation about how these drugs will impact consumption as well as various other industries such as airlines, packaging and smoking. For example:

  • Barclays says the drugs cut urges to consume addictive substances such as alcohol and cigarettes, which may hurt demand for products such as Pepsi and McDonalds
  • Bloomberg reports that traders added US$815 million in short positions to restaurant stocks over the past 30 days, with concerns that higher rates and weight-loss drugs will impact consumer behaviour
  • United Airlines says they would save US$80 million per annum if the average passenger weight falls by 10 pounds
  • Medical device stocks have tumbled as a diabetes treatment will eventually cut back the need for medical devices that provide insulin
The overnight developments have also weighed on ResMed (ASX: RMD), with its ADRs down 4.1% overnight to a two-week low.

I've been ruminating along this line. And the chart's sort of interesting.
From The Match Out today on livewire:

"Growing concern around the risks associated with Ozempic has helped Resmed (ASX: RMD) +3.11% today – sentiment is slowing turning back in their favour. We remain patient."

Not Held
Resmed could be in a bottoming formation here - a break of $24 resistance would look strong. I'll pick it to happen more likely than not.
Affect of GLP-1 on this company might have some growing skeptics.

Not Held and doubt that I'll buy as must try to conserve some cash.

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Get the occasional good article on the Nabtrade site. Still stewing over the RMD chart. A rally looks likely, more so if price breaks local resistance of $24, but will it mark the bottom if it happens? It's not one of my ideal bottoming pictures but that's not saying much. I can't be in everything that has speculative prospects. I haven't tried to value it either, it's always been way too expensive in recognition of its supposed growth pathway to interest me in the past. I always miss the value in growth stocks, e.g. XRO, where the chart interested me but the multiples turned me right off.

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Earnings results​

Underlying EBIT of USD 319 million grew 4% sequentially on fourth quarter fiscal 2023, with sales down 2% but underlying EBIT margin expanded 1.5% to 29%.

While first-quarter gross margin expanded just 0.2% sequentially to 56% versus the fourth quarter, this is largely due to the firm still working through higher-cost inventory given historically higher component and freight costs.

Following the result, the firm also reduced its global workforce by 5% in October 2023, largely in noncore SG&A (sales, general and administrative) activities. Accordingly, management revised its prior guidance, now expecting fiscal 2024 SG&A expenses to be 18% to 20% of revenue from 20% to 22% prior, and fiscal 2024 research and development expenses to be 6%-7% of revenue from 7%-8% prior. In short, a reduction in costs to help with margin expansion.

How we view the share​

We see the shares as materially undervalued. It’s currently trading at a 45% discount to fair value (as at 30 October 2023).

It has also been awarded a narrow moat. This means that our analysts believe that it can protect and grow its earnings for at least the next 10 years.

ResMed’s moat is based on switching costs and intangible assets, which have helped the company achieve high customer adherence rates and above-average industry growth.

In fiscal 2021, ResMed had over 15 million cloud-connected devices sold globally. These newer-generation devices enable physicians to remotely monitor the patient’s usage and breathing performance, entrenching ResMed as a preferred provider with both patients and physicians. For the patient, device feedback encourages usage and allows them to get individualized care from the physician, leading to better clinical outcomes. For the physician, trust in recorded data and grown familiarity with the software is likely to reduce switching to a different provider.

ResMed reports up to 87% adherence rates when the physician is using its cloud-based patient monitoring system, AirView, compared with the estimated industry average adherence rate of 50%. A higher adherence rate benefits both device upgrades as well as masks and accessories revenue as the physician reminds the patient of when they should be replaced.

ResMed’s intangible assets, namely its brand and patent portfolio, have also contributed to above-average industry growth and helped maintain its commanding market share. ResMed typically spends roughly 7% of revenue on research and development each year, which has ensured consistent product launches.

Despite growing off a much smaller base, Fisher & Paykel’s competing homecare segment has a trailing five-year revenue CAGR of 5%, lagging ResMed’s 10% over the same period. We think ResMed’s intangible brand has also enabled significant price premiums over less well-known peers.

Due to its significant market share and high gross margins in a structurally growing industry, ResMed has posted an average return on invested capital, or ROIC, of 20% over the last decade. We anticipate the company’s ROIC to far exceed its weighted cost of capital of 7.4% over our explicit forecast period, even in our bear-case scenario.
Resmed up 2.5% today on volume. Breakout through $24 really is looking inevitable.
The consistently high ROE is striking when looking at the graphic and this is against an uninterrupted annual growth in book value, using 9 years of CommSec financial summary stats.

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We see the shares as materially undervalued. It’s currently trading at a 45% discount to fair value (as at 30 October 2023).

God knows how these brokers calculate value! Its still above my range of Intrinsic Value!! Everytime you post something about it @finicky I go back and have a better look. It does have some metrics that appeal to me, ROIIC is very strong, over 35%, as you mention history of earnings and steady growth in revenue, eps and fcf - all over 10% CAGR for past 10 years.

The negatives for me are the debt and the price. I am tempted though.
Motley's buy recco just released for this month fwiw - probably not much.
So far price is holding above $24 resistance, we'll have to see if its got legs, weekly momentum indicators bullish at this point

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One that got away, I've been watching RMD for a small parcel among others since late Sept 2023. Ended up buying ASX instead, which to be fair, has outperformed since.

Up 6+% today on results announcement.

Market Matters (James Gerrish) complimentary email today. Remains bullish RMD and sees share price well exceeding $30 in 2024.

Not Held