ResMed: Near-Term Upside From Philips Withdrawal, Seeking $35 Per Share Return Objective

Jun. 07, 2022 10:31 AM ETResMed Inc. (RMD)RSMDF1 Comment
Zach Bristow profile picture
Zach Bristow
2.49K Followers

Summary

  • ResMed presents with near-term upside potential not yet reflected by the market.
  • The upside case is bolstered by a key competitor's withdrawal from the market until 2023 at least.
  • This adds to the certainty of RMD's future cash flows and underpins interesting economics in the company's forward sales estimates.
  • We are seeking a return objective of $35 per share with a speculative buy rating, aiming to capture the near-term catalyst listed above.

Doctor diagnose virtual human lungs innovation and medical technology. Healthcare and medicine concept.

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Investment Summary

We are constructive on ResMed Inc. (NYSE:RMD) shares noting there is near-term upside potential to be unlocked from competitor Philips' subsidiary, Respironics', device recall. With the competitor removed from the flow generator

RMD 12-month price performance

Data & Image Source: Bloomberg

RMD's gross margins have narrowed in recent times

Data: Bloomberg; Image Source: Hummingbird Insights LP

FCF History & Estimates

Data: Bloomberg; Image Source: Hummingbird Insights LP

Changes in working capital Q1 2020 - Q3 2022

Data: Bloomberg; Image Source: Hummingbird Insights LP

Hummingbird insights

Data & Image: Hummingbird Insights LP

RMD FCF Marginal analysis

Data: Bloomberg; Image: Hummingbird Insights LP

This article was written by

Zach Bristow profile picture
2.49K Followers
Buy side equity portfolio strategist serving mandates throughout EU/US/APAC. Helping you position your portfolios for the future is my top priority. Shoot me a message to discuss trade ides or talk portfolio construction. Disclaimer:The opinions expressed in all articles do not constitute as investment advice. Please remember to conduct your own due diligence.

Disclosure: I/we have a beneficial long position in the shares of RMD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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