The ResMed Inc (ASX: RMD) share price has been having a tough time in 2022.
Since the start of the year, the sleep treatment company's shares have fallen 22%.
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Is the ResMed share price weakness a buying opportunity?
While the decline in the ResMed share price this year has been disappointing, one leading broker appears to believe investors should take advantage of it and buy shares.
According to a recent note out of Citi, its analysts have retained their buy rating but trimmed their price target on the company's shares to $35.50.
Based on the latest ResMed share price of $28.41, this implies potential upside of 25% for investors over the next 12 months.
What did the broker say?
Citi notes that ResMed has been impacted by supply chain headwinds and has been unable to fully benefit from a major competitor recall.
In light of this and rising interest rates, it has trimmed its estimates and valuation of the ResMed share price. It explained:
We cut FY22-24E EPS by -7% / -5% / -7% on lower revenue expectations. Lower earnings, updated FX, and revised WACC of 7.2% (from 7%) to reflect the higher interest rates expectations result in a new target price of A$35.50 (from A$38.00).
Nevertheless, the broker remains positive. This is due to its attractive valuation and the broker's belief that ResMed will permanently win market share from the Philips recall.
RMD is trading at PE of ~28x FY24E, below historical avg of ~32x. Maintain Buy. RMD cut its additional device guidance in FY22 by $100m to $200-250m due to the difficulty in sourcing semiconductors as it attempts to fill the void left by the Philips recall (whose device sales were ~US$800m pa).
We forecast $225m in extra sales (from US$360m) in FY22 – we expect this to continue in FY23 where we assume ~US$350m (from US$315m) of extra sales. Despite the short-term impact, we continue to expect ResMed will make a permanent 10% market share gain in devices due to the Philips' recall.
