ResMed (ASX.RMD) grew fiscal 2026 EPS 17% to USD 11.2. Management guides to 12% to 14% core EPS growth in fiscal 2027. Shares fell 8%.

Why it matters: Excluding the recalled Astral ventilator, guidance implies fiscal 2027 revenue growth of about 6%-8%. This meets our forecast but undershoots management’s five-year ambition for high-single-digit growth.

  • Remaining EPS growth is mostly buyback accretion. ResMed targets USD 1.5 billion of repurchases in fiscal 2027, cutting our forecast share count by 5%. While only marginally accretive to fair value, it’s a sensible use of capital with shares this cheap.
  • After removing the disposed MatrixCare business, our forecasts stand. We expect revenue to reaccelerate, averaging 8% a year to fiscal 2030, as wearables pull undiagnosed patients into treatment.

The bottom line: Our fair value estimate for ResMed rises 3% to USD 30, mostly due to time value of money. Our AUD valuation increases 7% to $43, the difference being a weaker AUD. Shares are undervalued.

  • We differ from the market on continuous positive airway pressure adoption and the GLP-1 threat. Sleep apnea is driven by age, sex, and anatomy as well as weight, so remission after major weight loss is usually partial. Most patients also stop the drugs within a year.
  • With the Apple Watch cleared to flag suspected sleep apnea, and fewer than 20% of US sufferers diagnosed or treated, this is a significant counterbalance to the GLP-1 threat.

Between the lines: ResMed is lifting prices, a break for a firm that has preferred to grow margins through volume. Charitably, this is ResMed flexing pricing power, supporting our view that a brand intangible underpins its narrow moat.

  • But it could indicate management is concerned volume won’t drive the scale efficiencies needed to meet margin targets.
  • We don’t read too much into one result. But growing reliance on price over volume could be a sign that GLP-1s are impinging on CPAP adoption. If it continues, we will reassess that threat.

Resmed’s Growth Rests on the Undiagnosed Majority

ResMed is taking a “smart devices” and Big Data approach to further entrench itself as one of the two leading players in the global obstructive sleep apnea market. With cloud-connected devices, physicians can monitor patient compliance and encourage continued use. Higher adherence supports both reimbursement rates from payers and the resupply of masks and accessories. ResMed also plays a key role in producing clinical data that demonstrates treatment can minimize related risks such as hypertension, stroke, heart attack, and Alzheimer’s disease. Through its own testing devices and education, ResMed seeks more widespread diagnosis and treatment of OSA.

The global OSA homecare device market is a two-player duopoly with over 80% estimated market share split between ResMed and Philips, with ResMed the market leader in the majority of the 140 countries where it competes. The market offers a large global growth opportunity as penetration within developed markets is estimated at one-fifth of the roughly 15% prevalence, and emerging markets are essentially untapped. In the US, we estimate roughly half of the 22 million people diagnosed with OSA are treated with continuous positive airway pressure with another 34 million remaining undiagnosed. ResMed operates in over 140 countries with over 900 million people estimated to have sleep apnea globally, indicating the long runway for growth.

ResMed has made acquisitions of home healthcare software platforms such as Brightree, which was acquired in 2016, as it seeks to leverage the trends of digital health and providing care in a lower-cost setting.

ResMed has a minority stake in Nyxoah, which is developing a neurostimulation implant to treat OSA. Although we see little near-term risk from this therapy due to the higher cost and invasive surgery needed, ResMed’s minority stake hedges some risk from emerging competition.

Bulls Say

  • The long-term growth opportunity for respiratory homecare devices is sizable, as both developed and emerging markets are still significantly underpenetrated.
  • The focus on cloud-connected devices has led to increased adherence, supporting both reimbursement rates and the resupply of masks and accessories.
  • ResMed stands to benefit from Philips’ significant product recall and the launch of its new flagship product, AirSense 11.

Bears Say

  • Market share gains from Philips’ product recall may be limited as affected customers can wait for a replacement unit, purchase an alternative Philips product, and ResMed’s supply chain may be constrained.
  • Reimbursement rates and pricing are under threat as CMS continues to seek savings in the Medicare program, and newer treatments such as neurostimulation implants are emerging.
  • ResMed is largely unproven in homecare business management software, an area it is currently directing significant capital to and currently achieving organic revenue growth of midsingle digits.

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