Rising Street Value Of ResMed Shares Disconnected From Its Fundamentals

The stock valuation for ResMed Inc. RMD and its share price have increased despite the company’s deteriorating fundamentals.

Barclays’ Matthew Taylor maintained an Underweight rating on the company, with a price target of $55.

Headwinds

“While sleep apnea is a good volume market and we think RMD was intelligent to diversify away from some of its core pressures, we think there are headwinds coming in FY17 that even recent acquisitions and a good management team will have trouble managing through,” Taylor mentioned.

The analyst pointed out several factors that were likely to negatively impact ResMed in the near future, including slower underlying organic growth, given the tough comps and competitive launches that seem to be gaining momentum.

Taylor also expressed concern regarding gross margin pressure, which was likely to be exacerbated by FX tailwinds shifting to becoming headwinds.

Negative Impacts

The analyst noted that there were patent disputes that could have a negative impact, while reimbursement cuts were “increasingly impacting HME customers who are asking for bigger discounts.”

In addition, Taylor believes that further adverse influences could come from “a stock price move up despite puts and takes in the recent quarter and negative EPS momentum,” as well as the stock valuation, which seems expensive despite ResMed’s top and bottom line growth.

Although some of these factors appear worse than they actually are, they could have an impact on the stock and the business.

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