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Why Goldman Sachs is sitting on the fence over ResMed shares

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. 

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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.

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