Morgan Stanley upgraded shares of ResMed (NYSE:RMD) to Overweight from Equal-Weight, lowering the price target on the stock to $169 from $180 per share in a note to clients Friday.
Analysts told investors that their deep dive analysis on the obstructive sleep apnea (OSA) market suggests the company's share price may have overcompensated for the GLP-1 risk.
"OSA is an under-penetrated market," the analysts said. "Under our scenarios, we see CPAP patients potentially lost to GLP-1s as falling within scope of being at least somewhat offset by the expanding 'obesity funnel.'"
"RMD trades on ~17x our FY25E EPS vs the 10-year average of 28x. While we believe a P/E discount is warranted, we see the ~39% contraction as too great," they added.
The analysts added that they see the CPAP market penetration as low globally but higher in the US. In addition, the firm is "bullish on the prospects for GLP1s, in part, because at ~7% in the US, obesity treatment rates are low."
"Our Mid Case scenario for GLP-1 impact implies RMD loses 3.2mn globally in FY25 - to completely offset this - assuming 50% of patients into the funnel go to GLP-1 and 50% to CPAP - requires US obesity treatment rates to rise from ~7% to ~20% which is within the range of our forecasts," the analysts explained.