ResMed Inc. (ASX: RMD) shares are having a positive session on Friday.
Despite the market crumbling, the sleep disorder treatment company's shares are up 1.5% to $37.98.
Investors have been buying the ASX 200 star since the release of another strong quarterly result at the end of last week.
Should you be joining them? Let's see what analysts at Ord Minnett are saying about this blue chip.
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What is Ord Minnett saying about this ASX 200 star?
Ord Minnett was impressed with ResMed's performance during the second quarter, highlighting that its earnings were stronger than expected. This was driven largely by strong mask sales in the United States.
Commenting on the result, the broker said:
ResMed posted December-quarter EPS above market expectations, predominantly driven by strong sales of its masks in the key US market that supported a 16% rise in revenue in that segment, although mask sales in the rest-of-the-world (RoW) segment also grew, implying a gain in market share. Revenue growth in the residential care software (RCS) division was only 5% on a constant-currency basis although the company expects a pick-up in that pace to high single-digits by FY27.
Operating cash flow (OCF) proved the only disappointment in the quarter, albeit minor, rising 10% on a year ago but coming in 15% below Ord Minnett's estimate due to a build-up of working capital. Gross margin 62.3% was up 310 basis points (bp) and circa 20bp ahead of market expectations, supported by cheaper component prices for its machines and masks and production efficiencies.
Ord Minnett highlights that the ASX 200 star has lifted its gross margin guidance, which has underpinned an increase in its earnings estimates. However, due to the stronger Australian dollar, it has been forced to trim its valuation slightly. It explains:
ResMed is now guiding to an FY26 gross margin of 62–63%, up from 61–63% previously, and we have upgraded our own forecast to 62.4% from 64.1% as we incorporate cheaper input costs and production efficiencies into our numbers. A mark-to-market adjustment for the stronger Australian dollar currency means our target price in AUD falls to $43.70 from $44.56 despite a rise in our EPS forecasts.
Time to buy ResMed shares
Ord Minnett has a buy rating and $43.70 price target on the company's shares. Based on its current share price, this implies potential upside of 15% for investors over the next 12 months.
The broker revealed that it has "a strongly positive view" on the company following the result. It concludes:
We maintain a strongly positive view on ResMed as strong earnings growth boosts its net cash position, which should support higher dividends and more capital management. We reiterate our Buy recommendation.
