ResMed earnings: Solid showing from ASX healthcare winner

Shane Ponraj, CFA | Morningstar

ResMed’s fourth-quarter fiscal 2025 underlying EBIT grew 7% on the third, driven by increased product demand and gross margin expanding 150 basis points to 61% on component cost improvements and a currency tailwind.

ResMed (ASX:RMD) guided to gross margins expanding to roughly 62% in fiscal 2026. The result was solid and met our forecasts. However, we are more optimistic on future profitability, as the full benefit of cost improvements and efficiencies has yet to be realised, and the sales mix continues to shift to higher-margin masks and the AirSense 11 device.

We lift our EBIT forecasts by 5% on average over the next 5 years, largely because we raised our midcycle gross margin forecast by 250 basis points to 63%. We lift our midcycle EBIT margin forecast more modestly to 36%, from 35% prior, as we expect more marketing spend will be needed.

Our revenue forecasts are broadly unchanged. Mask sales in the US were stronger than expected, up an impressive 10% sequentially. However, we maintain our five-year US mask revenue CAGR forecast of 10%, given the current abnormally high demand for ResMed’s recently launched fabric mask.

We raise our Fair Value estimate

We increase our fair value estimate by 5% to USD 290, or AUD 45 per CDI, for narrow-moat ResMed on our earnings upgrades. Shares are undervalued, given that we are likely more optimistic than the market about ResMed’s ability to capitalize on growing awareness of sleep apnoea. Big picture:

The sleep apnoea market is underpenetrated, with most patients being undiagnosed. A key trend boosting new diagnoses is wearable technologies such as the Apple Watch that track sleep health and can detect signs of sleep apnoea.

Source: Morningstar

Weight loss drugs: from threat to opportunity?

GLP-1 weight loss drugs were seen as a major threat in disrupting the sleep apnoea industry but are now also increasing awareness.

ResMed’s data shows that sleep apnoea patients who have been prescribed GLP-1 drugs are more likely to buy ResMed’s products than patients who have not.

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