ResMed Inc (ASX: RMD) shares have been under the spotlight recently after sliding from their previous highs of $33.10 apiece.
The ASX 200 healthcare stock is currently fetching $30.27, more than 8% down from this previous high.
Shares in the respiratory device maker have been highly volatile in recent months due to concerns about the impact of GLP-1 weight loss drugs on its obstructive sleep apnoea (OSA) market.
Despite these worries, some experts remain unphased and have a bullish outlook on the company. Let's see what the experts say about the future of ResMed shares and how they view the potential impact of these drugs.
Concerns appear 'overblown'
In its July investment newsletter, Auscap Asset Management highlighted that it built a large position in ResMed shares in the second half of 2023.
It says the company has grown earnings per share (EPS) by 15% per annum for the last decade, maintaining a return on equity (ROE) of over 20%.
A major tailwind for ResMed was when its competitor, Philips, announced a recall of its continuous positive airway pressure (CPAP) devices in June 2021, making ResMed "the dominant player within its sector", Auscap says.
CPAP machines are prescribed to sufferers of OSA to help alleviate symptoms and allow decent sleep.
But the rise of GLP-1 drugs has raised concerns, the asset manager says.
ResMed sold off in the last year due to the perceived potential impact of a class of drugs referred to as [GLP-1s] which assist patients in losing significant amounts of weight.
There is a strong correlation between OSA and weight. GLP-1 drugs could potentially reduce the number of patients that suffer from OSA thereby reducing the size of its market.
Auscap also mentioned a recent high-profile study showing the positive impacts of GLP-1 drugs on OSA, which has driven another sell-off in ResMed shares.
Despite this, Auscap isn't as convinced, noting "the evidence is far from conclusive" and that "the concerns currently appear overblown".
ResMed noted that a current study of 660,000 patients with GLP-1 initiation and an OSA diagnosis saw a 10.5% increase in the likelihood that the patient would initiate positive airway pressure (PAP) therapy if they are prescribed a GLP-1 drug. Patients on GLP-1s also had higher PAP resupply rates 1 and 2 years post setup.
It also added:
Feedback suggests that ResMed remains the strongly preferred CPAP standard of care, with physicians tending to view GLP-1s as an adjunctive OSA therapy to CPAP…
…ResMed is currently trading on a forward price to earnings multiple that is a discount to where it has traded historically, and even more so relative to the broader market, which we think is a great opportunity to buy in at an attractive price for long term investors. We see a significant runway for earnings growth for ResMed over the coming years.
Other analysts are bullish on ResMed shares too
Analysts at multiple firms are also bullish on ResMed shares. Like Auscap, both Wilsons and ECP Asset Management are attracted to the company's valuation.
Meanwhile, Bell Potter is optimistic about ResMed's prospects despite recent concerns over GLP-1 drugs.
It, too, points out that ResMed has shown consistent annual profit increases and a 7% revenue boost in Q3 FY 2024.
Bell Potter has set a price target of $36.00 for ResMed shares, suggesting that the stock could be "undervalued and presents an attractive entry level for long term investors"
Foolish Takeaway
Despite market concerns about the impact of GLP-1 weight loss drugs, many experts remain bullish on ResMed.
Auscap and Bell Potter both highlight ResMed's strong fundamentals and growth potential. But this is absolutely no guarantee of future results. Moreover, as Auscap said – the research is inconclusive, which applies the other way too.
What happens if GLP-1 drugs are the breakthrough required in OSA? Only time will tell.
As always, it's essential to conduct your own research and consider your investment goals before making any decisions.
