ResMed (RMD) – Sleep well

ResMed develops, manufactures, distributes, and markets medical devices and cloud-based software applications for the healthcare markets. The company operates in two segments, Sleep and Respiratory Care, and Software as a Service, and markets its products to sleep clinics, home healthcare dealers, and hospitals through a network of distributors and direct sales force. ResMed Inc. was founded in 1989and is headquartered in San Diego, California.

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ResMed (RMD) reported a March-quarter gross margin comfortably ahead of market expectations, driven by an improved product mix and manufacturing efficiencies, and flagged an increase to its share buyback program from 30 June. The sleep apnoea equipment manufacturer enjoyed strong operating leverage to deliver EPS growth of 17% on a year ago from a rise in revenue of 9%, once adjusted for paper gains and losses in investments. Pleasingly, the revenue growth came from both the US market and the rest-of-the-world segment as masks sales surpassed consensus estimates, alleviating investor concerns the new generation of weight-loss drugs could reduce the number of existing installations.

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Ord Minnett expects that solid operating leverage to be maintained, or even slightly increased, driven by a further widening in gross margin, discipline on selling, general and administration expenses, and greater production efficiencies. ResMed is in a strong position for continued growth in earnings, noting we forecast EPS growth of 14% in FY26, while the company’s balance sheet can accommodate an increase in its share buyback program. Combined with an appealing valuation, Ord Minnett raises its recommendation on ResMed to Buy from Accumulate.