Sleep Device Player ResMed's Potential Obstacles: Analyst Weighs Obesity Drugs & Philips' Re-Entry

Needham upgraded ResMed Inc RMD from a Hold to Buy rating with a price target of $180.

The analysts Mike Matson, Joseph Conway, and David Saxon note that ResMed's shares are down 31% since the start of August (versus a 2% decline in the S&P 500), mainly due to concerns about the potential for GLP-1 obesity drugs to reduce demand for ResMed's sleep therapy devices. 

The analysts expect two negative effects of GLP-1s. 

• First, patients using continuous positive airway pressure (CPAP) who lose significant weight with GLP-1s may stop using their CPAPs, which would result in reduced mask sales. 
• Second, patients with undiagnosed sleep apnea who lose significant weight with GLP-1s may no longer be diagnosed, resulting in reduced flow generator sales. 

However, Needham says its analysis shows that both impacts will likely be small.

The analysts say that additional pressure is coming from Philips' PHG possible re-entry into the flow generator market, which could hurt ResMed's growth. 

Needham says that Philips' re-entry will impact ResMed's growth more than the GLP-1s. 

The analysts' Base-case estimate suggests that ResMed could see a ~3% headwind to its revenue growth from these two items over the next few years. 

Even with the headwinds, Needham writes that ResMed can sustain 5-7% revenue growth above its large-cap peers, for which median 2022E-2024E revenue growth is estimated at 5.1%. 

Price Action: RMD shares are down 0.32% at $153.40 on the last check Wednesday.