Why the ResMed share price could jump 25% from current levels

ResMed shares could be great value according to one leading broker…

| More on:
A man waking up happy with a smile on his face and arms outstretched representing the hefty Adairs dividend yield

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ResMed shares have fallen heavily in 2022
  • One leading broker sees this as a buying opportunity for investors
  • Its analysts believe there is 25% upside in the ResMed share price at current levels

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%.

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.

Motley Fool contributor James Mickleboro has no position in any of the stocks 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 Scott Phillips.

More on Broker Notes

Young woman using computer laptop with hand on chin thinking about question, pensive expression.
Broker Notes

Is the Beach Energy share price a buy following its post-reporting sell-off?

Are brokers still optimistic after slamming the company's earnings and guidance? We take a look.

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
Broker Notes

Why this broker sees plenty of upside for the ResMed share price

ResMed shares could be in the buy zone...

Read more »

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

Is the Westpac share price a buy following the bank’s latest update?

Are Westpac shares a buy after its latest update?

Read more »

A mle runner is in an awkward pose as the approaches an unever part of a running track through a forest with tall trees and sunlight shining through them.
Investing Strategies

‘Strong growth’: Expert names 2 ASX shares to buy for the long run

In a turbulent year like 2022, sometimes you just have to take a step back to find companies that have…

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Broker Notes

Why one broker is bullish on this ‘unloved and undervalued’ ASX 200 share

The company has not had a good time of it this year.

Read more »

ASX shares Business man marking buy on board and underlining it
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers rate these ASX shares as buys...

Read more »

Four businessmen in suits pose together in a martial arts style pose as if ready to engage in competition or spring into a fight.
Broker Notes

Is this ASX bank share a better buy than the big four banks?

One alternative bank share might be looking too cheap to ignore.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Resources Shares

Is the Santos share price a buy following the energy giant’s latest acquisition?

Santos has slipped, should investors seize the opportunity?

Read more »