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Highlights
- ResMed’s revenue grew 12% in FY24, bolstered by its obstructive sleep apnoea (OSA) products.
- Patient enrolment in ResMed’s myAir app surged 28% year-over-year, driving growth.
- Analysts project 20% earnings growth by FY27, with ResMed trading at a high P/E ratio.
ResMed (ASX:RMD) has become a standout performer in 2024, largely driven by its expanding portfolio of products for obstructive sleep apnoea (OSA). This success is evident in the company's financials, which show significant revenue growth, impressive free cash flow, and an expanding customer base through its digital health initiatives. But what exactly is fueling this growth?
Strong Financial Performance in FY24
ResMed has posted a 12% increase in revenue, reaching $4.7 billion for FY24. More importantly, the company produced $1.3 billion in free cash flow, which means for every dollar of revenue, 27.7 cents went directly into free cash flow. This is a crucial metric for investors, as it demonstrates the company’s ability to generate cash efficiently, which it can use for growth opportunities, innovation, and returning value to shareholders.
One significant contributor to this growth has been ResMed's myAir app, which saw a 28% year-over-year increase in patient enrolment. The app plays a central role in ResMed's ecosystem, helping patients manage their Continuous Positive Airway Pressure (CPAP) devices. With increasing awareness of obstructive sleep apnoea (OSA) and a rise in diagnoses, ResMed’s digital health platforms are becoming an integral part of its business success.
Market Position and the Competitive Advantage
ResMed operates in a largely underpenetrated market for obstructive sleep apnoea, with estimates suggesting that 1 billion people globally suffer from this condition. Despite the potential size of the market, it remains significantly underserved, providing ResMed with a strong growth opportunity.
Additionally, ResMed has secured a dominant position in the market, especially after the recall of Philips’ competing line of CPAP machines. This recall has left a gap in the market, which ResMed has been quick to capitalize on. As a result, the company’s market share has increased, and it is well-positioned to benefit from the ongoing growth in demand for OSA treatment solutions.
Analysts’ Forecast for 2025
Looking forward, analysts are optimistic about ResMed’s future growth prospects. CommSec analysts rate ResMed as a buy, with strong projections for the next few years. Consensus estimates suggest that the company’s earnings will grow by 20% between FY25 and FY27, with earnings per share (EPS) potentially reaching $1.54 by FY27.
Ord Minnett is also bullish on ResMed, maintaining a buy rating and setting a price target of $40.05. The broker highlighted the company’s solid September quarter, where revenue grew by 11%, and EPS surged by 35%. Ord Minnett forecasts 13% growth in EPS for FY25, justifying ResMed's relatively high price-to-earnings (P/E) ratio of 32x.
Additionally, Baird, a US-based investment firm, has rated ResMed as a buy, driven by the increasing prevalence of OSA, which remains a key driver for the company’s products. However, Baird has flagged a potential risk—competition from GLP-1 weight-loss drugs. These drugs could reduce the prevalence of OSA, but for now, this remains a speculative concern.
Baird has set a price target of US$280 for ResMed’s US-listed shares, indicating more than 17% upside potential from its current price of US$239.
