Citi raises ResMed stock rating to buy, target to $44

On Wednesday, Citi analysts, led by Mathieu Chevrier, upgraded ResMed shares from Neutral to Buy, adjusting the price target to AUD44.00 from AUD41.00. The firm highlighted ResMed’s strong expected earnings per share (EPS) growth, robust free cash flow (FCF) generation, and the forecast of becoming debt-free by the end of the fiscal year 2025. Currently trading at $231.48, ResMed boasts a market capitalization of $34 billion and maintains impressive annual revenue of $4.93 billion.

The upgrade reflects Citi’s confidence in ResMed’s valuation, which is seen as reasonable at 22 times the price-to-earnings (PE) ratio for the fiscal year two years ahead. This valuation aligns with the pre-pandemic average. Analysts at Citi are optimistic about the company’s projected compound annual growth rate (CAGR) of 14% for EPS from fiscal year 2024 to 2027. According to InvestingPro data, ResMed currently trades at a P/E of 27.39x, suggesting potential upside based on the platform’s proprietary Fair Value model. For deeper insights into ResMed’s valuation metrics and growth potential, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

ResMed’s financial health appears solid, with expectations of generating more than $1 billion in free cash flow. Additionally, the analysts forecast that the company will have no debt by the end of the fiscal year 2025. This financial stability is a key factor in the upgraded rating. InvestingPro analysis confirms this robust financial position, revealing a perfect Piotroski Score of 9 and an overall Financial Health Score of "GREAT." The company’s current ratio of 3.33 demonstrates strong liquidity, while its debt-to-equity ratio remains modest at 0.16.

Despite new approvals for GLP-1s, Citi analysts do not see an immediate impact on ResMed’s business, expecting promotional activities for these to increase in the second half of the calendar year 2025. They also believe that capacity constraints within healthcare systems will likely limit the growth of new patients.

Uncertainty remains regarding Philips’ return to the U.S. market, with Citi assuming a re-entry date of July 1, 2027. Nonetheless, no changes have been made to ResMed’s forecasts. The new price target of $44 is a result of a valuation roll-forward to an average of fiscal years 2026 and 2027 estimates, up from the previous fiscal year 2026 estimate.

In other recent news, ResMed reported its Q2 FY2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $2.43, compared to a forecast of $2.32, and revenue of $1.28 billion, exceeding the anticipated $1.27 billion. Despite the strong financial performance, ResMed’s stock experienced a decline in after-hours trading. The company has been actively launching new products and expanding its digital health solutions, alongside maintaining a robust cash flow and declaring a quarterly dividend. In another development, ResMed was added to Goldman Sachs’ APAC Director’s Cut Conviction List, highlighting a positive outlook for the company’s growth potential, driven by increased awareness of Obstructive Sleep Apnea (OSA) and anticipated market share expansion. However, Stifel analysts recently adjusted their outlook on ResMed, reducing the stock price target to $240 from $250, due to potential challenges in the CPAP market linked to the growing use of GLP-1 drugs. Despite these challenges, analysts at Stifel noted some positive aspects for the future, such as the potential boost from increasing popularity of wearables and easing practice capacity issues. These recent developments underscore the mixed outlook for ResMed as it navigates market dynamics and strategic growth initiatives.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.