Breathing disorder therapist ResMed ((RMD)) is increasing its dominance of the US sleep apnoea devices segment, reporting a robust December quarter result. This market dominance, Ord Minnett suggests, implies distributors are increasingly standardising on the company’s connected offering.
Resmed was the first company under my coverage when I joined Montgomery and I’ve thoroughly enjoyed following the company for five years. Over this time, I’ve always been fascinated by the treatment of sleep apnea, and it’s helped shape my understanding of an important investing principle: To generate value, you don’t need to solve a problem, you just need to provide a solution that’s materially better than your competitors.
Macquarie has long maintained the mantra that ResMed's valuation, now 36.8x forward earnings and a 38% premium to medical device peers, ascribes limited medium-term risk in relation to reimbursement changes or the longer-term impact of competing technologies. Underperform retained.
March quarter results alleviated concerns that growth was slowing in the core sleep business. The company is achieving a benefit from fixed cost leverage, with Deutsche Bank noting EBITDA margin expansion of 106 basis points.