Why the ResMed share price could jump 25% from current levels

man waking up happy with smile on face and arms outstretched

man waking up happy with smile on face and arms outstretched

The ResMed Inc (ASX: RMD) share price has been having a tough time in 2022.

Since the start of the year, the sleep treatment company’s shares have fallen 22%.

Is the ResMed share price weakness a buying opportunity?

While the decline in the ResMed share price this year has been disappointing, one leading broker appears to believe investors should take advantage of it and buy shares.

According to a recent note out of Citi, its analysts have retained their buy rating but trimmed their price target on the company’s shares to $35.50.

Based on the latest ResMed share price of $28.41, this implies potential upside of 25% for investors over the next 12 months.

What did the broker say?

Citi notes that ResMed has been impacted by supply chain headwinds and has been unable to fully benefit from a major competitor recall.

In light of this and rising interest rates, it has trimmed its estimates and valuation of the ResMed share price. It explained:

We cut FY22-24E EPS by -7% / -5% / -7% on lower revenue expectations. Lower earnings, updated FX, and revised WACC of 7.2% (from 7%) to reflect the higher interest rates expectations result in a new target price of A$35.50 (from A$38.00).

Nevertheless, the broker remains positive. This is due to its attractive valuation and the broker’s belief that ResMed will permanently win market share from the Philips recall.

RMD is trading at PE of ~28x FY24E, below historical avg of ~32x. Maintain Buy. RMD cut its additional device guidance in FY22 by $100m to $200-250m due to the difficulty in sourcing semiconductors as it attempts to fill the void left by the Philips recall (whose device sales were ~US$800m pa).

We forecast $225m in extra sales (from US$360m) in FY22 – we expect this to continue in FY23 where we assume ~US$350m (from US$315m) of extra sales. Despite the short-term impact, we continue to expect ResMed will make a permanent 10% market share gain in devices due to the Philips’ recall.

The post Why the ResMed share price could jump 25% from current levels appeared first on The Motley Fool Australia.

Should you invest $1,000 in ResMed right now?

Before you consider ResMed, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and ResMed wasn’t one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

More reading

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/QvAUgPY

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s