The powerful analysts at Goldman Sachs have run the ruler over ResMed. Inc. (ASX: RMD) shares after the San Diego-based sleep treatment company posted its results for the quarter ending June 30, 2o19 and came up with a bullish $21.20 share price target.
Goldman's identifies a few factors from the ResMed result that is driving its bullish view.
First up it flags that it seems ResMed is improving its penetration of the sleep apnea condition that is widely regarded as being commonly undiagnosed.
On Goldman's estimates only 20% of sufferers are diagnosed in the US and less than 5% in Europe and the RoW. As such it seems ResMed is in a long term sweet spot if diagnosis is growing.
Secondly the analysts state: "Current pricing dynamics are more favourable than at any time through the last decade. We expect stable pricing across both Medicare and commercial channels through CY20, hence see scope for modest organic gross margin expansion through this period and potentially beyond. Amidst favourable market conditions, we expect RMD to continue to benefit from the breadth/depth of its portfolio and the success of its resupply programs."
Third, Goldman's notes that a series of new mask launches appear to be helping ResMed take share in an outcome that was also flagged by CEO ResMed "Mick" Farrell.
These factors among many others are why the analysts upgraded EBIT and earnings per share growth rates to help it reach its $21.20 valuation.
Notably, the analysts also point out that ResMed on "21.0x FY20E EBITDA (31.9x FY20E earnings)" is still cheaper than CSL Limited (ASX: CSL) on "24.0x" and Cochlear Ltd (ASX: COH) "on 29.0x, despite offering comparable growth (+9% EBITDA CAGR FY19-22E vs. +8% and 12% respectively)."
Should you buy?
You cannot argue with that, although for interested investors I would point out that ResMed's ASX scrip at $18.74 is currently trading at as bigger variance to the primary NYSE listing as I can remember in over 5 years, with the NYSE scrip closing Friday night at US$126.87. This should equal an ASX share price of $18.33 using an FX rate of AUD/USD 69.2c.
In other words I personally wouldn't buy the ASX scrip for more than $18.33 – $18.40 today as I've never known it to vary more than 2% or 3% from the primary NYSE listing. As such investors might get ASX scrip much cheaper tomorrow if the NYSE listing does not climb significantly overnight on the back of more analyst upgrades.
