UBS & Macquarie deliver ratings on ResMed Inc. ahead of profit report

Brokers are cautious on medical device group, ResMed Inc. (CHESS) (ASX: RMD), ahead of the group’s 3Q18 results Friday due to the stock’s current valuation levels. 

UBS cut its rating to “Neutral” from “Buy” due to ResMed’s recent share price performance, following around a 15% gain in the medical device group’s shares over the past six months. 

“… With the stock trading at an EV/EBITDA premium to market of 76% (vs two-year historic average of 50%) we believe the robust earnings growth outlook is largely captured in the share price,” it said in a research note. 

“RMD is trading on 29x 12-month forward consensus EPS (FactSet) representing an 86% premium to the ASX200 industrials average. This compares to two-year averages of 24x and 54% respectively”. 

The broker also revised up its EPS forecasts by 7%, 3% and 1% over FY18E, FY19E and FY20E, respectively. It also lifted its share price target to US$104 from US$96 due to a move to a DCF-based valuation methodology. 

Macquarie meanwhile, kept its “Underperform” rating on the stock, with ResMed’s relative valuation to Australian healthcare peers one reason for the cautious tone. 

“Current valuations for RMD appear fair relative to domestic healthcare peers on a consensus PE/growth basis but slightly expensive based on Macquarie forecasts,” the broker said in a research note. 

It added that compared to both Cochlear Limited (ASX: COH) and CSL Limited (ASX: CSL), ResMed’s “re-rating has been more substantial.” 

The broker has ResMed on a current two-year P/E relative of 18% compared to Cochlear on 13% and CSL on 10%. 

Macquarie added that ResMed’s risk/reward profile was skewed to the downside, with its DCF valuation on a price scenario implying 19% downside to the current share price. 

“With scenario analysis showing the risk/reward profile as skewed to the downside as well as noting limited appeal on a PE/growth basis, we see these factors as supportive of our investment rating,” it said. 

For Friday 3Q18 result, Macquarie is looking for growth in ResMed’s masks and accessories as well as underlying trends in gross margins and any changes to expectations for the effective tax rate in FY19. It is forecasting 3Q18 non-GAAP NPAT of US$124 million. 

As at lunchtime Tuesday, ResMed’s Australian shares were down 0.2% to $12.80, while Cochlear gained 1.7% to $185.67 and CSL was up 1.2% to $161.43.   

Broader Australian healthcare stocks also gained, with Primary Health Care Limited (ASX: PRY) up 0.8% to $3.76, Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) up 0.9% to $63.25, Sonic Healthcare Limited (ASX: SHL) up 1.2% to $23.35 and Healthscope Ltd (ASX: HSO) up 0.3% to $2.04. 

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Gabriella Hold has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!