Now could be the time to buy ResMed Inc (ASX: RMD) shares.
That's the view of analysts at Morgans, who have turned positive on the sleep disorder-focused medical device company following its second-quarter update.
Image source: Getty Images
What happened in the second quarter?
Last week, ResMed released its second-quarter result and revealed revenue and profits ahead of consensus expectations.
For the three months ended 31 December, ResMed reported an 11% increase in revenue to US$1.4 billion over the prior corresponding period. This reflects increased demand for its portfolio of sleep devices, masks, and accessories.
U.S., Canada, and Latin America revenue, excluding Residential Care Software, grew by 11%, whereas revenue in Europe, Asia, and other markets, excluding Residential Care Software, grew by 6% in constant currency. Residential Care software revenue increased 5% on a constant currency basis.
Another major highlight was ResMed's gross margin, which increased once again. Its gross margin increased 320 basis points during the quarter thanks to manufacturing and logistics efficiencies and component cost improvements.
This led to ResMed's income from operations increasing a sizeable 18% on the same period last year.
ResMed's chairman and CEO, Mick Farrell, said:
Year-over-year, we delivered 11% headline revenue growth, 310 basis points of non-GAAP gross margin expansion, and continued operating excellence, resulting in another quarter of mid-teens non-GAAP EPS growth. These results reflect strong ongoing demand for our market-leading sleep and respiratory care devices, as well as the growing impact of our digital health ecosystem that spans more than 140 countries.
Morgans upgrades ResMed's shares
In response to the update, the team at Morgans has upgraded ResMed shares to a buy rating with a $47.73 price target.
Based on its current share price of $36.72, this implies potential upside of 30% for investors over the next 12 months.
Commenting on its recommendation, Morgans said:
2Q beat across the board, with double-digit revenue and earnings growth, further gross margin expansion and solid cash generation. Sleep and respiratory sales were strong in both regions, with above-market growth in the Americas and ROW returning to market growth, while SaaS beat expectations, but remained subdued by residential care headwinds. Operating leverage improved again, with gross margin gains from manufacturing and logistics efficiencies, and FY26 guidance tightened to 62-63% (from 61-63%), reinforcing confidence in ongoing margin progression. We adjust FY26-28 forecasts modesty and move to BUY with a A$47.73 target price, viewing recent share weakness unjustified given sound fundamentals.
