ResMed Inc. (ASX: RMD)

RMD is a provider of digital health technologies and cloud-connected medical devices. The products and solutions are designed for people with sleep apnea, chronic obstructive pulmonary disease (COPD), and other chronic diseases.

Recommendation Rationale – SELL at AUD 31.84

• Trading Around Resistance: RMD’s share price surpassed its R1 level recommended on 3 July 2024.
• Overvalued Multiples: On a forward 12-month basis, the stock is trading at an EV/Sales multiple of 6.0x vs industry (Healthcare) median of 3.3sx.
• Rising Costs: During 3QFY24 for the period ended 31 March 2024, the company noted increased operating expenses attributed to higher selling, general, and administrative expenses, R&D expenditure, among others. These factors are expected to exert downward pressure on its margins in the future.
• Leveraged Balance Sheet: As of 31 March 2024, Long-term debt stood at USD 997mn compared with USD 1,216.7mn as of 31 December 2023. Cash balances amounted to USD 237.9mn as of 31 March 2024. Although the debt level was sequentially lower, it is still on the higher side compared to RMD’s cash balance.
• Emerging Risks: RMD continues to prioritise product development and innovation in sleep apnea and respiratory care, ensuring cutting-edge solutions that meet evolving healthcare needs.

RMD Daily Chart

(Source: Trading View)

Valuation Methodology: P/E Approach (FY June'25E) (Illustrative)

Stock might trade at a slight premium to its peers, considering the company’s consistent revenue growth and profitability, increasing adoption and demand for its products and solutions, and other factors. For valuation, few peers like Ansell Ltd (ASX: ANN), Sonic Healthcare Ltd (ASX: SHL), and Ramsay Health Care Ltd (ASX: RHC) have been considered. Considering that the stock has surpassed its R1 level, share price movement, other risks associated with the business, and downside indicated by the valuation, it can face resistance at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 31.84, as of 26 July 2024, at 10:05 AM AEST.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 26 July 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.