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Goldman Sachs tips ResMed share price to race higher

The ResMed Inc. (ASX: RMD) share price was one of the best performers on the ASX 200 last week.

During the period the sleep treatment-focused medical device company’s shares recorded a 7% weekly gain.

Why did ResMed’s shares race higher?

The driver of this impressive gain was the release of a very strong quarterly update.

That update saw ResMed post first quarter revenue of US$681.1 million, up 16.1% on the prior corresponding period.

Pleasingly, thanks to further improvements in its margins, net operating profit increased at an even quicker rate of 19%. This led to the company posting diluted earnings per share of 93 U.S. cents.

Both its revenue and earnings smashed the market’s expectations, leading to investors scrambling to pick up shares.

Is it too late to invest?

I don’t believe it is too late to invest. I still see a lot of value in its shares for investors focused on making a buy and hold investment.

This view is echoed by analysts at Goldman Sachs. A note out of the investment bank reveals that they have retained their buy rating and lifted the price target on its shares to $23.20. This price target implies potential upside of more than 10% over the next 12 months.

Goldman was impressed with ResMed’s performance in the first quarter, particularly from its masks business. It said: “The greater share of today’s +8% beat is driven by masks (+19% in each of US and RoW is the strongest performance since disclosed separately), and 1Q20 is the 9th consecutive quarter of double-digit EBIT growth (+22%).”

And while the broker expects this growth to moderate, it still sees solid growth ahead.

“Whilst these rates are unlikely sustainable, we expect masks to continue to deliver low-teens growth (GSe: +13%), driven by effective portfolio management and successful re-supply programs,” it added.

The broker also spoke positively about its valuation. Pointing out that although its shares have hit an all-time high, they are still trading below the healthcare peer group of Cochlear Limited (ASX: COH), CSL Limited (ASX: CSL), and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH).

Overall, I think Goldman makes some great points and suspect its shares may be heading higher again today.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL 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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