Is the ResMed (ASX:RMD) share price good value after its Q3 update?

Will the ResMed Inc (ASX:RMD) share price be heading higher from here following last week’s update? Here’s what these brokers think…

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The ResMed Inc (ASX: RMD) share price was out of form last week.

The sleep treatment-focused medical device company’s shares lost 3.5% of their value over the five days.

Why did the ResMed share price tumble lower?

Investors were selling ResMed’s shares last week following the release of its third quarter update, which fell a touch short of expectations.

For the three months ended 31 March, ResMed reported revenue of US$768.8 million and an operating profit of US$223.4 million. This represents a 0.1% decline and 3% increase, respectively, over the same period last year.

While this growth is slower than the market is used to, it is worth noting that the prior corresponding period benefited greatly from strong COVID-19-related ventilator sales.

In fact, if you exclude COVID-19 benefits from a year ago, its revenue would have grown year on year.

Is this a buying opportunity?

According to a note out of Goldman Sachs, its analysts don’t see enough value in its shares yet to make a buy recommendation. Goldman has retained its neutral rating and trimmed its price target slightly to $28.40.

However, based on the latest ResMed share price of $26.17, this price target still implies decent upside of 8.5% over the next 12 months.

Goldman commented: “The shortfall in mask growth in 3Q21 may now also be symptomatic of the cumulative deficit in diagnoses through the last 12m (GSe: 20% of masks from new starts) and, if so, it may be several quarters yet before mask growth returns towards the 3-year quarterly average of +14% that the market had become increasingly accustomed to. Furthermore, costs growing ahead of revenue is an unusual dynamic for RMD and one that may persist through to 4Q22E, depending on the shape of the recovery from here.”

Though, it is worth pointing out that Goldman remains very positive on RedMed’s long term future.

It explained: “We believe it is the clear leader in an attractive market with long-term, realizable penetration upside. The pricing outlook is the best in years, and whilst the AHRQ report adds risk to the regulatory environment, at this stage we do not expect a material impact.”

What did other brokers say?

Two brokers that appears more positive on the near term opportunity are Credit Suisse and Morgans.

This morning Credit Suisse put an outperform rating and $29.00 price target on its shares. Whereas Morgans has put an add rating and $29.14 price target on its shares.

These price targets imply potential upside of 10.8% to 11.3% over the next 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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