Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

RMD Stock Study (11-5-25)

Posted by on February 24, 2025 at 06:24 | Last modified: November 6, 2025 07:01

I recently did a stock study on ResMed Inc. (RMD, $246.40). Previous studies are here and here.

M* writes:

     > ResMed is one of the largest respiratory care device companies
     > globally, primarily developing and supplying flow generators,
     > masks and accessories for the treatment of sleep apnea.
     > Increasing diagnosis of sleep apnea combined with ageing
     > populations and increasing prevalence of obesity is resulting
     > in a structurally growing market. The company earns roughly
     > two thirds of its revenue in the Americas and the balance
     > across other regions dominated by Europe, Japan and Australia.
     > Recent developments and acquisitions have focused on digital
     > health as ResMed is aiming to differentiate itself through
     > the provision of clinical data for use by the patient,
     > medical care advisor and payer in the out-of-hospital setting.

Over the past decade, the medium-size company has grown sales and earnings at annualized rates of 12.2% and 17.2%, respectively (FY ends Jun 30). Lines are mostly up, straight, and parallel except for EPS dips in ’17, ’18, and ’21. Ten-year EPS R^2 is 0.89 and Value Line (VL) gives an Earnings Predictability score of 90.

Over the past decade, PTPM leads peer and industry averages while increasing from 23.9% (’16) to 32.6% (’25) with a last-5-year mean of 28.0%. ROE also leads peer and industry averages while ranging from 15.1% in ’18 to 27.4% in ’20 with a last-5-year mean of 22.2%. Debt-to-Capital is lower than peer and industry averages while falling from 40.9% (’16) to 12.5% (’25) with a last-5-year mean of 19.7%.

Quick Ratio is 1.7 and Interest Coverage is N/A per M* who assigns “Narrow” Economic Moat, gives an “Exemplary” rating for Capital Allocation, and an A grade for Financial Health (per BI website). VL gives an A grade for Financial Strength.

With regard to sales growth:

My 5.0% per year forecast is below the range.

With regard to EPS growth:

My 6.0% per year forecast is below the long-term estimate range [mean of six: 12.2%]. Initial value is ’25 EPS of $9.51/share (up 37.4% YOY) rather than 2026 Q1 $9.77 (annualized).

My Forecast High P/E is 27.0. Over the past 10 years, high P/E ranges from 25.8 (’16) to 56.9 (’22; 76.5 upside outlier in ’21 excluded) with a last-5-year mean of 39.5 and a last-5-year-mean average P/E of 33.2 (’21 low P/E also excluded). I am near bottom of the range (only ’16 is less).

My Forecast Low P/E is 19.0. Over the past 10 years, low P/E ranges from 19.1 in ’24 to 35.7 in ’22 (51.1 upside outlier in ’21 excluded) with a last-5-year mean of 26.9. My forecast is below the range.

My Low Stock Price Forecast (LSPF) of $180.70 is default based on initial value given above. That is 26.7% less than the previous closing price and 9.6% less than the 52-week low.

Over the past 10 years, Payout Ratio (PR) decreases from 48.2% (’16) to 22.3% (’25) with a last-5-year mean of 31.8%. I am forecasting below the range at 22.0%.

These inputs land RMD in the HOLD zone with a U/D ratio of 1.5. Total Annualized Return (TAR) is 7.7%.

PAR (using Forecast Average—not High—P/E) of 4.5% is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 151 studies done in the past 90 days (my study along with 60 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 7.9%, 11.0%, 31.0, 22.0, and 31.8%. I am lower across the board. VL’s future average annual P/E of 28.0 is greater than MS (26.5) and greater than mine (23.0).

MS high / low EPS are $16.02 / $9.38 versus my $12.73 / $9.51 (per share). My high EPS is less due to a lower growth rate. At $12.30, VL high EPS is less than both (first time I can recall seeing that).

MS LSPF of $199.70 implies a Forecast Low P/E of 24.0 vs. the above-stated 22.0. MS LSPF is 3.2% less than the default $9.38/share * 22.0 = $206.36 resulting in more conservative zoning. MS LSPF remains 10.5% greater than mine, however.

MOS is moderate in this study because my inputs are below most analyst/MS estimates. In support is MS TAR (14.5%) exceeding mine by 6.8% per year. In opposition is VL who I usually find to be more bullish.† VL has an 18-month target price of $241 in contrast to CFRA with a 12-month target price of $300.

With regard to valuation, PEG is 1.7 and 4.0 per Zacks and my projected P/E(much lower growth rate): somewhat overvalued (1.6 per M*). Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.76.

Per U/D, RMD is a BUY under $221/share. BI TAR criterion is met [343.7 / ((14.07 / 100 ) +1 ) ^ 5] ~ $178 with a forecast high price ~$344.

Full disclaimer: I currently own shares of the stock.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

† — Technically, VL is still slightly more bullish with a projected EPS growth rate of 6.5% versus
       my 6.0%. Its $12.30 EPS is based on four years compared to my $12.73 after five. Also,
       multiplying its future average annual P/E of 28.0 * $12.73/share = $344. This future average
       [P/E] price is the same as my future high [P/E] price. I don’t usually mind these details when
       assessing MOS because I prefer to have clear and obvious differentiation.

Categories: BetterInvesting® | Comments (0) | Permalink