Should you pounce on ResMed shares at around $28?

Here's what top broker Citi says.

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Senior woman using cpap machine to stop choking and snoring from obstructive sleep apnoea with bokeh and morning light background.

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ResMed Inc (ASX: RMD) shares are currently 2.13% higher at $28.24, significantly outpacing the market today.

The S&P/ASX 200 Index (ASX: XJO) is down 1.15% as the market continues to process yesterday's inflation upside surprise.

This time last week, ResMed shares were trading about 12.5% higher at $31.75 apiece.

They took a tumble on Monday following news of a United States medical study showing GLP-1 medicines directly reduced the rate of obstructive sleep apnoea (OSA) in patients with obesity.

ResMed's products treat sleep apnoea.

The ASX 200 healthcare stock closed at $27.74 on Monday. Since then, it seems ASX investors are taking the opportunity to buy the dip.

Are they doing the right thing?

Here's what top broker Citi thinks.

Should you buy the dip on ResMed shares?

Top broker Citi reacted to the US study by cutting its rating on ResMed shares to neutral.

The broker also slashed its 12-month share price target from $36 per share to $30 per share.

Given ResMed is currently trading at $28.24, the potential upside is limited to only 6% over the next year.

Citi analyst Mathieu Chevrier said the study by global pharmaceutical giant Eli Lilly And Co (NYSE: LLY) "indicates that GLP-1 are a viable treatment option for the 70 per cent of OSA patients that are obese".

Chevrier estimates that if half of those patients went into OSA remission, that could mean a 35% fall in the total addressable market (TAM) for continuous positive airway pressure (CPAP) machines.

ResMed sells CPAP machines.

Based on the study, Citi assumes a 15% fall in TAM for OSA from FY26 to FY28.

As such, it has cut its forecast revenue growth for ResMed. The forecast was cut from 6% to 4% for FY26 and from 4% to 3% for FY25. Citi held its forecast steady at 2% for FY26.

The study sought to measure the impact of Eli Lilly's GLP-1 drug, Tirzepatide, on people with obesity and OSA.

Tirzepatide is the key ingredient in Mounjaro (prescribed for diabetes) and Zepbound (prescribed for obesity).

These drugs compete with alternative GLP-1s, Ozempic and Wegovy, which are made with semaglutide.

Eli Lilly reported that OSA remission was achieved in 52% of patients in the study.

Last year, ResMed CEO Mick Farrell sought to reassure investors that the OSA market was enormous, regardless of the impact of GLP-1 drugs.

He said even with GLP-1 medicines factored in, the TAM for OSA would be 1.2 billion by 2050.

ResMed currently has 22.5 million customers using its OSA products.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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