Is the ResMed (ASX:RMD) share price good value?

Up 18% in 12 months… can ResMed keep climbing?

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The ResMed Inc (ASX: RMD) share price has been a positive performer over the last 12 months.

Since this time last year, the sleep treatment focused medical device company’s shares have risen a sizeable 18%.

Is it too to buy ResMed shares?

According to one leading broker, the ResMed share price could be nearing its full value.

A note out of Goldman Sachs this morning reveals that its analysts have retained their neutral rating and $28.40 price target on the company’s shares.

This compares to the latest ResMed share price of $27.15.

What did the broker say?

The broker notes that ResMed recently presented at its Annual Global Healthcare Conference.

At the event, ResMed’s COO, Rob Douglas, spoke positively about recent trading and a new product launch, which could capitalise on competitor challenges.

However, Mr Douglas also revealed that supply chain issues could put pressure on its near term costs.

Current trading

Goldman commented: “With vaccine roll-out progressing well in most key markets, RMD sees scope to reach pre-Covid-19 levels of new patient starts within the next two quarters. In our view, evidence of this recovery is the key factor to support a sustained re-rating in the stock.”

“Management acknowledges that the cumulative impact of fewer diagnoses through the trailing quarters is now a headwind to mask growth, but believes this will normalise relatively quickly as diagnoses continue to recover (we estimate c.20% of mask sales are derived through new patient starts).”

Cost pressures

Commenting on cost pressures, Goldman said: “In line with many other medical device manufacturers, RMD is currently encountering various pressures across its supply chain (most notably the availability and cost of freight). One of the more attractive features of the business over the last decade has been the consistent ability to grow revenue ahead of costs. With cost growth now increasing and revenues not yet normalised we see scope for near-term margin pressure.”

Though, the broker points out that “management was keen to emphasise the target to continue to deliver positive operating leverage through the mid/longer-term.”

New product launch

Goldman Sachs also notes that the launch of its new flow generator, AirSense 11, could be a boost to sales.

It explained: “Historically, a new launch has tended to precede a modest uptick in device sales growth; generally due to more favourable pricing on the legacy portfolio. Following the €250m provision recently announced by Philips for a corrective field action for its DreamStation1, there has been some debate about the extent to which RMD can capitalise. Whilst certain customers have contacted them to enquire around their scope to backfill, RMD was keen to emphasise that their primary focus is ensuring the best outcomes for patients overall.”

Neutral rating

While Goldman Sachs remains positive on the long term, it isn’t recommending the ResMed share price as a buy just yet.

It concluded: “We retain a positive view on mid-/long-term fundamentals, but maintain a Neutral rating RMD on short-term challenges and valuation grounds.”

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. 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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