The ResMed Inc (ASX: RMD) share price has been under the pump in recent months.
So much so, that the sleep treatment-focused medical device company's shares are now down almost 40% since the start of August.
The catalyst for this has of course been the emergence of glucagon-like peptide-1 receptor agonists (GLP-1s) as weight loss wonder drugs.
Given how a large portion of sleep apnoea sufferers, ResMed's key target market, are classed as overweight, there are fears that this could reduce its addressable market.
However, analysts and the company have refuted this, modelling out a significant market opportunity for ResMed to grow into over the long term even with GLP-1 adoption increasing materially.
In light of this, a number of analysts believe the ResMed share price weakness has been a huge overreaction, creating a compelling buying opportunity for investors.
Citi says ResMed share price is 'oversold'
Citi was relatively pleased with ResMed's recent quarterly update and has responded by boosting its near-term earnings estimates.
And while the broker has reduced its longer-term estimates to reflect the anticipated impact of GLP-1s on the sleep apnoea market, it believes its shares remain extremely good value.
In fact, the broker has a buy rating and a $29 price target on its shares. This implies a potential upside of 33% for the ResMed share price over the next 12 months.
Citi commented:
We upgrade our FY24-26e EPS by 6%/6%/2% on lower opex offsetting lower GM. We make minimal changes to our near-term revenue forecasts. We cut medium and long-term sleep revenue by ~15% on the anticipated impact of GLP-1s on OSA prevalence. Our new DCF-derived TP of A$29.00, implies a ~21.5x PE FY25 (below the pre-pandemic average of ~24x) vs. ~16x currently. We view the shares as oversold and maintain our Buy rating, acknowledging that the multiple could remain under pressure near-term pending the SELECT and SURMOUNT-OSA trials data in Nov'23 and mid-2024. Our forecast assumes a rebasing of the CPAP market over several years combined with Philips gradually regaining ~20% market share.
