ResMed Boosted To Buy At Bank Of America

William Dunlop of Bank of America Merrill Lynch mentioned that discussions with U.S. DME distributors and competitors revealed that distributors were beginning to focus on growing re-supply sales using cloud-connected re-supply software, such as Brightree, to mitigate reimbursement costs.

Dunlop upgraded the rating on ResMed Inc. RMD from Neutral to Buy, while raising the price target from $89.00 to $71.50.

Meaningful Potential

“We believe there is significant potential here. To put the industry’s incentive in context, we calculate that the DME industry could earn US$318m of profit and RMD A$260m by supplying 1 more mask, cushion, filter and tube to each US CPAP patient,” the analyst stated.

Dunlop estimated that U.S. patients were receiving only 45 percent of the allowable masks and 15 percent of accessories.

The analyst believes that there would be 11.5 percent growth in U.S. masks and accessories in FY 2017, although 20 percent growth also didn't seem unreasonable.

“There is a risk that Medicare could lower its allowable resupply frequency if claims increase, but it has stated it requires specific studies to consider change,” Dunlop explained.

Pricing Stable

DME distributors also revealed that manufacturer pricing was stable, despite Competitive Bidding Round 2 and the National Rollout going live on July 1, which lowers DME industry reimbursement by an estimated 4.5 percent.

“When re-supply growth is coupled with likely moderate market share gains from new P20 and N20 mask launches, we believe profit is likely to exceed market expectations,” the analyst added.

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