Why Goldman Sachs is sitting on the fence over ResMed shares

ResMed Inc. (ASX:RMD): Buy, hold, sell?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's been one of the best performing blue-chip shares in Australia over the last 5 years in more than tripling in value, but many retail investors might not even be that familiar with ResMed Inc. (ASX: RMD).

Its core business is selling masks or continuous positive airway pressure (CPAP) devices for the treatment of sleep apnea. While it's also now moving heavily into the hospice and home health treatment spaces via acquisitions and a deliberate shift into growing out its software-as-a-service and digital health capabilities.

As a result ResMed's US$17.3 billion market cap means it's now a far bigger company than the more well-known Cochlear Ltd (ASX: COH) at A$11.9 billion.

ResMed's strong share price run though has the analysts at Goldman Sachs taking a "neutral" rating on the shares after Goldies put a $16.70 12-month share price target on the business on June 10, 2019.

As such ResMed investors could be in for a disappointing 12 months if Goldman's is on the money. 

Goldmans notes that ResMed's masks business has performed nicely over the last 12 months on the back of new product launches and a more positive reimbursement environment in its core U.S. market. 

However, it reckons the growth in ResMed's newly-acquired SaaS businesses could slow, while the reimbursement environment is notoriously unpredictable. 

Its $16.70 valuation is based 85% on a NTM EV/EBITDA valuation of $15.80 and 15% on an M&A valuation of A$21.70.

I'd have to agree with Goldman's that the stock doesn't look great value at $17.55 today, although it remains one of the best looking long-term growth businesses on the S&P/ ASX200 in my opinion.

As such I'd keep it on the watch list for some price weakness. 

Tom Richardson owns shares of Cochlear Ltd. and ResMed Inc.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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.

More on Record Highs

A smiling woman puts fuel into her car at a petrol pump.
Energy Shares

How has this ASX 200 energy stock just hit another new record high?

This energy stock can't stop clocking new highs.

Read more »

ETF spelt out with a rising green arrow.
ETFs

4 top ASX exchange-traded funds smashing record highs on Wednesday

If you own any of these popular ETFs, congratulations!

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Record Highs

ASX 200 soars to another new all-time high on Friday!

Exuberant investors just sent the ASX 200 to another new all-time high.

Read more »

A beautiful ocean vista is shown with a woman whose back is to the camera holding her arms up in triumph as she stands at the top of a rock feeling thrilled that ASX 200 shares are reaching multi-year high prices today
Share Market News

The ASX 200 just hit another new record high on Monday

The ASX 200 just breached Friday’s record to set a new all-time high today.

Read more »

A man wearing a red jacket and mountain hiking clothes stands at the top of a mountain peak and looks out over countless mountain ranges.
Technology Shares

The Nasdaq just hit a fresh all-time high. What could it mean for Aussie investors?

With the Nasdaq at fresh highs, ASX tech shares are reaping the benefits.

Read more »

ETF written in gold with dollar signs on coin.
ETFs

4 hot ASX ETFs smashing all-time highs on Thursday

ETFs are on fire this Thursday.

Read more »

Yellow rising arrow on a brick wall with a man on a ladder.
Record Highs

How did the Brickworks share price just hit an all-time high?

This stock is building up investor excitement.

Read more »

rising asx share price represented by drone flying in the air
Technology Shares

How has the DroneShield share price gained 90% in a month?

DroneShield shares are once again at a new record high today.

Read more »