FWIW Updated research reports on ResMed out from many brokers/investment banks today - here's a short summary snippet across the range (Citi and BoFA also released updates but I don't have the details)

CLSA: Outperform 12m PT$41.50

Strong 1Q25 underpins positive sentiment through FY25: O-PF retained; Devices healthy, likely RoW share gains, GM up slightly QoQ, in-line with Cons; FY25CL outlook: robust earnings + strong balance sheet, but GLP1 caution; Valuation: PE Rel highlights RMD valuation upside, even accounting for risks; Price target rises 4% to A$41.50

UBS: Neutral 12m PT US$225

Small sales beat, in line gross margin and delivery on operational costs make up 6% core EPS beat

ResMed has delivered across the P&L with beats to consensus expectations everywhere except gross margin which was in line. We think, if there is an area investors might be less sure of it will be whether 11% consensus expectations for top line growth for FY25 can be delivered given 2H growth is likely to be a bit slower than 1H growth

RBC: Sector Perform PT US$225

RMD delivered a strong 1Q25 result with a 3% revenue beat, gross margins broadly in line with expectations (but a 400bps improvement YoY and a 10bps improvement QoQ), non-GAAP income from operations exceeding consensus by 5% and non-GAAP net income beating consensus by 6%. Segment revenues exceeded consensus across all categories, with the exception of Americas masks which came in line with consensus. We expect the market will view this as a strong result

Macquarie: Outperform 12m PT $37.70

1Q25 a beat; Revenue ahead of expectations, driven by RoW; Gross margin; SG&A/R&D; Buy-back program; New products

Wolfe Research: Underperform PT US$190

Bulls win the round – good upside quarter, increase estimates and target. Our Underperform call oriented around a 1-2 year view on risk/reward to the multiple – still see it similarly, albeit on a slightly higher EPS base now

JP Morgan: Overweight PT $37

Double digit growth across all segments; Gross and operating margins to improve through the year; GM, opex and tax guidance unchanged, interest cost lowered, buyback lifted; Mega trends still to provide support; Gaining or holding share across markets; SaaS business growth across the verticals; Buyback spend lifted, M&A “tuck-ins” of up to $0.5b; Working capital lifted due to higher inventories, operating cashflow still strong

BoFA:

1Q25 result: Disproving the bears

Citi:

Strong Q1 on better Devices revenue and tax rate

DISC: Held in RL & SM

A snapshot of some broker views in some updated broker reports post the recent Resmed Investor Day

MST Marquee: Buy 12m PT $37.99 (Rodney Note - @Strawman would love how very specific that PT is :) - maybe they are doing the whole "sales tactic" thing of X.99 seeming much cheaper than the next whole dollar :))

Innovation catchup underway: Masks & Key App

• Launches 2nd new mask in ~12 months. Pent up innovation pipeline delivers
• Smartwatch integration apps a ‘must have’ as industry gears up for boost in vols
• MSTe: earnings unchanged.PT A$37.99 BUY (unchanged)

After a ~5 year hiatus, the RMD innovation pipeline is now delivering at an accelerated rate. At the New York investor day, RMD has launched the AirTouch N30i nasal mask to replace / augment the ~7 year old AirFit N30i. The new product is a “tube up” design that differs from the earlier product with a fabric covered frame and a cushion moulded from two different materials. Without customer feedback, the change appears incremental but, history shows that new mask launches rarely fail to boost revenue and margin. This is the second new product launch in ~12mths representing a faster pace of release vs history. Unsurprising, considering that RMD’s R&D spend did not fall during their ‘innovation hiatus’. This suggests that RMD has a cupboard full of new products ready to go. Indeed, CEO Mick Farrell says expect “increased product velocity”.

JP Morgan: Overweight 12m PT $37

ResMed delivered its 2030 Strategy at an Investor Day hosted in New York earlier. The broader management team provided greater insights to its strategy, following a changeover since the last Investor Day back in 2021, with the implications to market forecasts appearing minimal given few specific financial details.

• Long-term target focused on operating leverage

• Branching into sleep adjacencies

• Focusing on consumerisation of the product range

• Adherence at the heart of innovation

• Individualised omnichannels drive demand in each geography

• Multiple avenues identified for new ‘tidal wave’ of patients

• Baseline expectations see major competitor potentially back to US in FY26

Macquarie: Outperform 12m PT $36.25

Key points

• Key financial commentary: Five-year revenue growth to be in the high single digits (MRE/VA ~6% p.a. over FY24-29), with earnings growth higher than revenue growth (MRE/VA NPAT growth ~9% p.a.). Quarterly share repurchases are likely to increase during FY25.

• New mask launched

• US OSA market

• Re-supply

• RMD GLP-1 database

• Segment adjacencies

• Industry mega-trends

• AI

RBC: Sector Perform PT $34

Investor day outlines better than expected medium term outlook

Our view: RMD's investor day outlined a better than expected revenue and earnings outlook to 2030 supported by AI/ML, demand generation initiatives, higher resupply rates and expansion into new markets. Whilst the company exceeded the last investor day's revenue outlook, we note RMD benefited from the Philips recall. We continue to expect the return of Philips to limit RMD's revenue growth, although have tempered our assumptions. We have revised our forecasts, lifted our PT to US$224/share (CDI A$34) and maintained a Sector Perform rating

CLSA: Outperform 12m PT $40

• Smartwatch OSA functions surprisingly reliable = key demand gen driver

With ResMed’s (RMD) focus on “megatrend’s” to help drive OSA awareness, market growth and its own 5yr “high single digit” p.a. revenue growth target, we analyse the sleep apnea function on Apple’s Watch Series 10 and Samsung’s Galaxy watch, and provide high level views on the opportunity and challenges this may have for the obstructive sleep apnea (OSA) sector. Overall, we agree this is a key demand gen driver for OSA, noting encouraging specificity and sensitivity may help drive more quality patient engagement, with the potential to drive diagnosis rates higher. But we caution it may place further pressure on an already strained specialist workforce, therefore growth may ramp up over time. This is despite an increasing focus on home based services, and expectations clinicians may prioritise higher risk patients for testing. PT A$40.00; O-PF rating retained

• Sleep apnea detection in Apple & Samsung comparable to gold standard PSG
• Wearables to supercharge growth, but bottlenecks remain a near-term focus
• Price target A$40.00 and O-PF rating retained

A brief note out from UBS

3yr SURMOUNT-1 data does not change what we know about GLP-1s and OSA

ResMed shares were down in US trading yesterday, along with other perceived GLP-1 loser stocks (TNDM, PODD, DXCM, INSP) after the release of three year data from Lilly's SURMOUNT-1 trial showing 94% reduction in progression to diabetes among adults with pre-diabetes and obesity / overweight. This is not a new study - the original (72 week) results (for weight loss) were published in the NEJM in 2022 - this is later reporting of a secondary end point. This is also not an OSA study (not even as a secondary end point) but adds to the growing pile of evidence for positive outcomes via management of the metabolic axis using modern GLP-1s. In this case we think weakness in ResMed shares is probably unjustified given that although there is a link between sleep quality and insulin resistance, the link between excess weight and OSA is stronger and is what will dominate the influence of GLP-1s on ResMed's business. In other words, the stock should not be penalised twice. Similarly, SURMOUNT-1's 94% greater than the 73% in Novo's SELECT trial, but it is already known that tirzepatide leads to greater weight loss than semaglutide so this difference should not be surprising

Where do we stand on ResMed shares?

We have recently started to lean slightly more positive on ResMed shares, although remain Neutral rated, as there is some evidence for the "funnel filling" thesis (i.e. that GLP-1s could be good for the stock in the medium term as more patients come in to care, even if we are convinced they are bad in the long run). We continue to prefer CSL (Buy, PT USD340) and TLX (Buy, PT AUD29) for their fairly unencumbered exposures to growing end-markets, pricing power and ability to leverage the economics of their base businesses far into the future. We are more nervous about situations with lower pricing power or structural challenges around profitability largely - services and providers

DISC: Held in RL & SM

Five investment banks have released first reads research on RMD post 2Q24 results overnight

@mikebrisy's writeup very comprehensively and eloquently covers the thoughts already, including the previously hinted mindbending prospect that GLP-1's may actually be a tailwind and not a headwind

Again FWIW here are some snippets from each of the reports:

RBC:

NYSE: RMD | USD 174.97 | Sector Perform | Price Target USD 181.00

Sentiment: Positive

Our view: RMD delivered a good operational result with revenue and gross profit (non-GAAP) coming in 1% and 3% respectively ahead of consensus expectations. Operating expenses came in slightly lower which led to a 6% beat at non-GAAP income from operations. Reported earnings were lower than expectations as the company incurred $64m of restructuring costs and $6m of costs associated with the masks & magnets safety notification. Device revenues in both the Americas and RoW exceeded consensus numbers, while Masks & Accessories in both the Americas and RoW were a slight miss. We expect the stock price to be well supported given the solid sales growth and improvement in gross margins during this quarter

UBS:

Neutral, 12m PT USD $175

Overall we think the result will be interpreted positively given the focus on core gross margin. Reported gross margin fell due to costs associated with the widely discussed masks/magnets recall (label change). We perhaps expect some questions from investors around a miss in masks if devices continue to do well, and wonder to what degree the beat for devices can be linked to the "GLP-1 funnel augmentation" thesis

GS:

Buy, 12m PT AUD $32

Solid +4-6% earnings beat as US device growth normalises and GM recovery continues

2Q revenue growth of +11%, +2% vs. cons, as US device growth recovers after 1Q blip

EBIT/EPS beat +6%/+4% as gross margins improved further in 2Q (+90bps) and SG&A intensity declines once more

No guidance as typical; core debates remain: 1) competitor challenges, including timing/outcome of consent decree; 2) GLP-1 risk; 3) gross margin trajectory

JPM:

Overweight, PT USD $195

Key positives: Gross margin up 90bps sequentially. Device sales the surprise strength. Buyback started this quarter at $50m which is earlier than expected

Key negatives: Mask growth slightly weaker than we had expected. Restructuring costs higher

Expected share price reaction. Mid single digit share price increase

MS:

Overweight, PT AUD $28.60

Top line was a small beat with strength in US devices offsetting weakness in masks. Non-GAAP GP margin + 90bps to 56.9% sequentially (60bps above Street) – improvement in freight and favourable currency offset by higher component cost and neg. mix. Non-GAAP includes adj. of US$64m relating to restructuring charges and A$6m relating to the mask recall, resulting in GAAP-GP of 55.6%. The strength in margins delivered a strong beat on the bottom line with diluted EPS +13% to US$1.88 (+5% Street, -1% MSe)

We were concerned about some downside risk to US device sales growth due to the 2% growth in prev. Q, however, it was a beat (+2% MSe; +3% Street) at 8% growth. International device sales growth also positively surprised at 19% growth

Mask sales growth was a disappointment where we may have overestimated the benefit from the expanded installed base. US mask sales -6% MSe and -2% Cons, at 11% growth. International mask sales -5% MSe and -1% Cons, at 9% growth

DISC: Small position Held in RL & SM

FWIW today from Morgan Stanley

DISC: Small position Held in RL & SM

Could GLP-1 therapy will be a tailwind for CPAP therapy, rather than a headwind?

The following from JP Morgan Research

Key Takeaways from J.P. Morgan Healthcare Conference

ResMed presented new compelling data showing patients prescribed obesity drugs are more likely to initiate on PAP therapy and order more consumables. This evidence is at odds with our and market expectations that obesity drugs would lead to lower PAP therapy. This finding will need to be confirmed with longer-term usage (ResMed committed to providing regular updates) and real world experience as GLP-1s become more widely available, but it is clearly encouraging. We have lifted our DCF-based price targets from US$160/A$25 to US$195/A$29 after lifting our outer year forecasts and raising our terminal growth rate given the reduced GLP-1 threat. Overweight ratings retained

New analysis shows patients prescribed obesity drugs more likely on PAP therapy. In contrast to what we (and the market) expected, patients taking GLP-1 drugs are 10% more likely to initiate PAP therapy. Mask resupply rates were also shown to be 3% higher in GLP-1 patients a year on with CPAP therapy and 5% higher two years on. These results were drawn from a dataset of more than 500k patients tracking GLP-1 usage from 2021. The data suggests GLP-1 therapy will be a tailwind for CPAP therapy, rather than a headwind. The majority (close to 90%) of patients in the study were prescribed the newer GLP- 1 drugs, semaglutide or tirzepatide

SURMOUNT data expected to show combined therapy best. The CEO relayed a key opinion leader's view that SURMOUNT data (due in coming months) will most likely show the patients using both CPAP and GLP-1 will enjoy the best outcomes – i.e. lowest AHI. We share this view and believe it reduces the risk the trial results are perceived to be a clear negative for ResMed

Philips provided little new information on the sleep business. The CEO confirmed there are a number of "important chapters to be closed" with regard to the status of the 2021 device recall (Consent Decree, litigation settlement, DoJ investigation) but offered no comment on the likely timing. The recent overheating issues with the DreamStation2 device were played down, with management not expecting any material impact. Finally industry feedback has confirmed Philips has not cut prices in countries where it has re-entered the CPAP market post the recall

PT lifted as terminal growth rates increased. In light of encouraging data, we have lifted our outer-year sales growth estimates and increased the terminal growth rate in our DCF to 4% from 3.25%. This reflects our increased confidence the impact of the GLP-1 drugs will fall short of our worst fears, but is still below the level we used prior to emergence of the GLP-1 threat in 2023 

DISC: held in RL & SM

DreamStation 2 safety warning could delay Philips returning to the market 

On 28 Nov 2023, the FDA issued a safety communication warning to users of Philips' Dreamstation 2 devices that their devices could overheat. The FDA has received 270 Medical Device Reports (MDRs) between 1 Aug 2023 and 15 Nov 2023 of thermal issues such as fire, smoke, burns and other signs of overheating (vs 30 MDRs in the previous 3 years)

From RBC Capital Markets:

We believe this issue for Philips' CPAP devices could further delay the finalisation of its Consent Decree and therefore lead to an extension of its time out of the new patient market in the US. We currently assume Philips returns to the Americas new patient market during the Sep 24 qtr, and therefore any delay to the finalisation of Philips’ Consent Decree could lead to higher devices sales for RMD. This new overheating issue for DreamStation 2 devices may also impact Philips' sales to new patients in markets outside the US, which could also lead to higher device sales for RMD in RoW markets 

DISC: Held in SM & RL

Unsure what if any the practical implications of this are yet ...

ResMed has issued an urgent field safety notice for certain models of its AirFit masks that contain magnets, citing issues around interference with medical implants. In a letter sent to patients on 20 November, the US-headquartered company updated the contraindications and warnings in the user guides for the masks. The masks affected include multiple AirFit models from its full-face mask, nasal mask, and non-vented mask ranges and are used to deliver air from a positive airway pressure (PAP) device

The masks use magnets to provide easier attachment and detachment to headgear. The company says their use is especially important to patients with dexterity vision impairment, or those with disabilities. The safety notice is due to reports of magnetic interference of the magnets with implanted devices in the patient. ResMed has submitted five reports of serious harm, potentially caused by this issue, to regulatory authorities. No deaths have been reported. ResMed said that medical device function could be affected, whilst ferromagnetic implants could change position because of mask magnet proximity. Active medical implants that could be affected include cardiovascular devices such as pacemakers, and implantable cardioverter defibrillators (ICD). Neurostimulators and cerebrospinal fluid (CSF) shunts can also suffer from interference, along with diabetes devices such as insulin/infusion pumps. ResMed also stated that patients with metallic implants containing ferromagnetic materials are contraindicated for using the masks. This includes, among others, patients with stents, valves, and flow disruption devices. ResMed warned users to keep the mask magnets at least six inches away from medical devices or implants that may be affected. According to the letter, ResMed has sold tens of millions of masks across the last nine years

ResMed is not the only company to run into problems with magnetic masks. Philips, which has battled large recalls across its respiratory medical devices, alerted customers to safety issues of its continuous PAP or bi-Level PAP therapy masks after reports similarly designed magnets were affecting implanted devices. The US Food and Drug Administration (FDA) tagged Philips' recall as Class I, the most serious classification. The recall involved over 18 million devices sold in the US

DISC: Small position Held in RL & SM

ResMed has announced a host of leadership changes as "part of a new operating model to accelerate long-term growth"

Chief among the executive changes is the retirement of Rob Douglas, current president and chief operating officer, on January 1, 2024. Other moves include the appointment of Justin Leong as chief product officer, Katrin Pucknat as chief marketing officer and Mike Fliss as chief revenue officer. All changes are effective immediately

"The new operating model introduces dedicated leadership in Product, Revenue, and Marketing to the global executive team. This change aims to increase the velocity of product development and sharpen our customer and brand focus", RMD said in a statement

The new operating model introduces dedicated leadership in Product, Revenue, and Marketing to the global executive team. This change aims to increase the velocity of product development and sharpen our customer and brand focus. Ultimately, the goal is to accelerate profitable growth, while driving greater value and improved care throughout the outside hospital care continuum and the patient journey

ResMed’s new Product-led, Customer-centric, and Brand-enhanced operating model includes the following executive leadership team:

Leaders appointed into new roles:

• Chief Product Officer – Justin Leong (previously president, Asia and Latin America)
• Chief Marketing Officer – Katrin Pucknat (previously president, Germany)
• Chief Revenue Officer – Mike Fliss (previously vice president, North America sales)

In addition to the above roles, the executive leadership team also includes:

• Chief Commercial Officer, SaaS – Bobby Ghoshal
• Chief Financial Officer – Brett Sandercock
• Chief Legal Officer – Mike Rider
• Chief People Officer – Vered Keisar
• Chief Strategy Officer – Hemanth Reddy

The extended CEO operations team, reporting directly to the CEO, includes:

• Chief Compliance Officer – Jim Ellis
• Chief Information Security Officer – Todd Friedman
• Chief Investor Relations Officer – Amy Wakeham
• Chief Medical Officer – Carlos Nunez
• Chief Quality & Regulatory Officer – Dawn Haake
• Chief Supply Chain Officer – Andrew Price

ResMed also announced that Rob Douglas, current president and chief operating officer, plans to retire on January 1, 2024. Rob will immediately transition from his current role to a new role as special advisor to the CEO and remain in a consulting role through December 31, 2024. Additionally, Lucile Blaise, current president sleep and respiratory care, will immediately transition to a new role as senior vice president, strategy & business development, reporting to Hemanth Reddy. Finally, as part of the operating model evolution, the digital health technology product organization will now report to Justin Leong, and Urvashi Tyagi, current chief technology officer, will immediately transition to a role as special advisor to the Chief Product Officer through January 1, 2024. Urvashi will remain in a consulting role through December 31, 2024

Article on Livewire : ResMed CEO says weight-loss drugs and sleep apnea therapy are complementary, not substitutes

also includes some of what Goldman Sachs had to say

FWIW at least 5 investment banks who cover Resmed released short one pager updates this morning incl

UBS - Neutral - 12m PT US$170

GS - Buy - 12m PT $33

MS - Equal Weight - PT US$180

JPM - Overweight - PT $26.50

Macq - Outperform - 12m PT $32.30

DISC: Small position Held in RL & SM

Just published in a note from by Morgan Stanley

Clear pathway for RMD for longer 

The FDA Center for Devices and Radiological Health (CDRH) has provided an update on the Philips June 2021 recall. At the FDA’s request, Philips (PHG.AS, covered by Robert Davies) had completed an independent testing program to assess the risks related to the PE-PUR sound abatement foam found in certain recalled Philips devices

Notably, the FDA has concluded that “We do not believe that the testing and analysis Philips has shared to date are adequate to fully evaluate the risks posed to users from the recalled devices. Although Philips concluded that the exposure to foam particles and VOCs from these devices is "unlikely to result in an appreciable harm to health in patients," the FDA believes additional testing is necessary”. Philips has agreed to conduct the requested additional testing

Philips remains in discussion with the US DOJ on the terms of its consent decree to resolve the identified issues with its manufacturing practices. No timeline has been outlined. The company previously guided to a Q2 consent decree finalisation

DISC: Held in RL & SM

From UBS ...

Steps to drive OSA diagnosis

Partnership with Nyxoah

RedMed and Belgian med tech firm Nyxoah, who manufacture hyperglossal neurostimulation devices for OSA, have announced a partnership to drive awareness, diagnosis and treatment in the German market. ResMed operates in c.140 countries, so any potential uplift from one ex US market is unlikely material as far as our forecasts are concerned but it matters to us symbolically as we have been looking to the company for some direction on the action they might take should there be some diversion of patients to GLP-1 drugs aimed at weight loss, and subsequent loss of these patients to the CPAP ecosystem. We have previously written on this and at the moment estimate c.14% volume headwind a long way out and no impact near term. We have also noted prior that ResMed potentially has a variety of potential options including trying to increase diagnosis rates (knowing that not every diagnosed patient will be captureable), focussing on COPD patients and/or use of c.$4b balance sheet fire power on our estimates. We think concrete action, even if it is not drastic, is the route to reassuring investors about the evolution of strategy for the long term future of ResMed's business and would not be surprised to see newsflow like this continue.

Valuation:

We value ResMed shares using DCF and have not changed our estimates. Our USD170 price target implies an FY24e core PE multiple of c.26x, for c.10% 24-28e earnings CAGR, but we are cautious about when we think the shares can close in on this valuation given the GLP-1 narrative weighing on the stock at present. 

Yet more "confirmation bias :)" on RMD in relation to the GLP-1 drugs - this time from Morningstar Australia - with a video interview of their analyst covering RMD

Is the sharp fall in ResMed's share price justified?

The potential for weight loss drugs to impact the sleep apnea giant has weighed on the share price, though Morningstar analyst Shane Ponraj thinks it’s overdone

I'm starting to get superficially concerned that this is becoming the consensus view and we're all camping out on the same side of the boat (certainly it seems amongst fundies and analysts here in Australia - tho it appears in the US the view is perhaps essentially the opposite)

The video/article is probably premium only behind the paywall so here's the transcript ...

James Gruber: Sleep apnea device maker ResMed (ASX:RMD) share price has taken a beating of late, thanks to the hype around drugs that supposedly cure obesity. If right, it could impact the demand for sleep apnea devices. It's a good time to catch up with Shane Ponraj, Morningstar's analyst, to discuss the latest developments.

Shane, thanks for your time today.

Shane Ponraj: No worries. Thanks, James.

Gruber: Worries about the effectiveness of new weight loss drugs and the potential impact on sleep apnea device demands seem to be behind ResMed's share price fall. First, can you tell us about these weight loss drugs?

Ponraj: Yeah, sure. So, the class of drugs we're talking about are GLP-1 drugs. So, some of the brand names you might have heard of are Ozempic and Wegovy. And these drugs have been around for a while and traditionally, they've been used to treat type 2 diabetes. But it's found that these drugs are also quite good at weight loss. And Wegovy around two years ago was first approved officially for this indication.

So, just as a background, GLP-1 is a hormone that our bodies produce in response to food. So, when we eat food, our blood sugar rises. But when our body senses GLP-1, our pancreas produces insulin and suppresses glucagon, which helps to bring back the blood sugar down. So, for people with diabetes, this is really important because elevated blood sugar can do all sorts of damage to arterial walls and increase the risk of serious health complications. And for weight loss, GLP-1 actually slows down how quickly food passes through our body and our brain also suppresses our hunger and our appetite. So, basically, we essentially feel fuller for longer on a lower amount of food.

Gruber: And how effective are these drugs when it comes to weight loss?

Ponraj: Yeah. So, these drugs are quite effective for diabetes and also for weight loss. The average weight loss is around 15% and typically, it's administered by injectables on a weekly basis. But it's reasonable to assume that as supply improves, there will be an oral version of this drug that will be quite accessible in the future, but that should take some time.

Gruber: How could these drugs impact the sleep apnea market?

Ponraj: So, the thinking here is that if most sleep apnea patients are obese and these drugs solve obesity, then for the most part, they should solve sleep apnea as well. But it's important to remember that obesity is just one risk factor of sleep apnea. A lot of it is anatomical, so the jaw end where the tongue sits and sometimes also central, so brain related, and obesity just worsens this by constricting the airway more.

Gruber: Are the weight loss drugs a real threat to ResMed then, in your view?

Ponraj: Look, it's reasonable to assume some sort of impact, but we think that's more than priced in now. Basically, we think the global sleep apnea market is untapped and largely under-penetrated and more than big enough for ResMed to remain a meaningful player in addressing sleep apnea. So, sleep apnea patients might be obese on average, but those who take the drugs after they lose 15% of body weight, many of them will still be technically obese. And close to all of these patients who are on the drugs, it won't solve their sleep apnea completely, but it would rather have a proportionate drop in the number of episodes or the amount of times that the airway is obstructed when they sleep. So, someone who has severe sleep apnea might move down to moderate sleep apnea, but they would still greatly benefit from being on a CPAP machine.

Gruber: So, these latest developments don't change your view much on ResMed's outlook for the next 12 to 24 months?

Ponraj: No. We think these drugs will continue to have little to no impact on ResMed in the near term. ResMed is still delivering really strong top-line growth, and we think what's more likely is that the market will realize that these drugs will take some time to be widely adopted and more than that for it to flow through into ResMed's financials. So, some of the factors that we see limiting widespread adoption is cost. So, these drugs aren't widely reimbursed yet. Supply – so, even now, a lot of people with diabetes are struggling to get access to these drugs. And third is patient adherence. So, side effects are minor, but still very common in terms of nausea, vomiting, diarrhea. And you have to also ask yourself what would happen to people who come off the drugs. Will they put the weight back on? In terms of ResMed's revenue in the near term, they're still dominating the industry. Their main competitor, Philips, is still out of the market. Sleep apnea diagnosis rates are continuing to recover and improve. And in terms of their supply constraints that they experienced during the pandemic of chip shortages, that's pretty much behind them now.

Gruber: So, I assume then that ResMed's economic moat remains unchanged?

Ponraj: Yeah, we retain our narrow moat for ResMed. If anything, ResMed's moat has strengthened since Philips' recall. So, physicians are more often prescribing ResMed's products now to new patients who are then entrenched into the ResMed ecosystem. ResMed boasts the highest adherence rates in the industry of 87% and their devices and masks are only getting better with time in terms of being smaller, quieter, more comfortable. So, they are the number one player in the market for a reason.

Gruber: Your fair value on the stock is $39. It offers a lot of upside from here. How do you derive that price target?

Ponraj: Yeah. So, our forecasts on the revenue line are quite in line with consensus. I think the biggest driver of why we're different is that we're forecasting EBIT margins to expand a bit to 34% in five years from about 31% in fiscal '21. EBIT margin is around 29% currently, but near-term, we think the sales mix should shift to higher-margin masks and accessories. Cost inefficiencies of manufacturing both the A10 and the AirSense 11 device that should stop once the company focuses on the AirSense 11 and the full benefits of freight, and component costs coming down, that's yet to fully flow through to the P&L. And longer-term, we think SG&A costs will continue to scale as they have done in the past. And we think that's a reflection of the growing evidence for sleep apnea and that being more widely understood.

DISC: Small Position Held in RL & SM

A nice bit of discussion between Gaurav Sodhi and Graham Witcomb from Intelligent Investor on Youtube just released. It also includes a good discussion on RMD (from about 11 minutes in till 31 minutes in)

Buy, Hold, Sell, Exhale… Reporting season views

DISC: Small position held in RL & SM