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ResMed Inc . (NYSE:RMD; ASX:RMD), a leading player in the medical technology sector specializing in sleep apnea and respiratory care devices, has been navigating a complex market landscape characterized by strong growth, innovative product launches, and emerging challenges. According to InvestingPro data, the company maintains a "GREAT" financial health score of 3.51, supported by strong profitability metrics and consistent dividend growth over 13 consecutive years. This comprehensive analysis examines ResMed’s recent performance, strategic initiatives, and future prospects in light of evolving market dynamics and competitive pressures.
Recent Financial Performance
ResMed’s fiscal third quarter of 2025 results presented a mixed picture of the company’s financial health. The company reported revenue of $1.29 billion, representing a 9% year-over-year increase when excluding foreign exchange impacts. This growth was primarily driven by the strong performance of the Masks & Other segment, which generated $454 million in revenue, slightly surpassing analyst expectations.
However, the Devices segment showed some weakness, with revenue of $676 million falling short of consensus estimates. The company’s adjusted earnings per share (EPS) for the quarter came in at $2.37, marginally missing analyst projections by one cent. Despite this slight bottom-line miss, ResMed demonstrated robust gross margin performance, attributed to ongoing efficiency initiatives that are beginning to yield results.
Product Segments and Innovation
ResMed’s product portfolio spans across two main segments: Devices and Masks & Other. The company has been actively innovating in both areas, with particular success in its mask offerings. The launch of the AirSense 11 device and various new mask designs has been driving momentum and contributing to market share gains.
The Devices segment, while experiencing some recent softness, remains a crucial part of ResMed’s business. The company’s focus on developing advanced sleep apnea devices, including the well-received AirSense 10 and 11 models, has helped maintain its strong market position.
In the Masks & Other segment, ResMed has been capitalizing on its innovative designs and the positive reception from sleep specialists. This segment’s outperformance in recent quarters underscores the company’s ability to meet evolving patient needs and preferences.
Market Position and Competition
ResMed has significantly strengthened its market position in recent years, partly benefiting from issues faced by key competitor Philips. The company’s consistent execution and ability to beat top and bottom-line estimates over the past four quarters have solidified its leadership in the sleep technology market. Based on InvestingPro’s Fair Value analysis, ResMed currently appears slightly undervalued, suggesting potential upside for investors. The company’s strong market position is further supported by its healthy balance sheet, with a current ratio of 3.41 and moderate debt levels.
However, analysts caution that ResMed’s market share gains might level off as Philips works to resolve its regulatory issues. This potential stabilization in market share dynamics could impact ResMed’s growth trajectory in the coming years.
Growth Strategies and Future Outlook
ResMed’s growth strategy encompasses several key elements:
1. Expansion beyond sleep apnea: The company is actively pursuing opportunities in adjacent markets, including solutions for insomnia and chronic obstructive pulmonary disease (COPD). A particular focus is on addressing COMISA (combined insomnia and sleep apnea), which represents a significant market opportunity.
2. Wearable technology: ResMed anticipates that the adoption of wearable technology will significantly increase CPAP therapy adoption over the next 12-24 months. This trend could expand the overall market for ResMed’s products and services.
3. Continued innovation: The company remains committed to developing new products and enhancing existing ones to maintain its competitive edge and meet evolving patient needs.
4. Financial targets: ResMed aims for high single-digit revenue growth, with EPS growth outpacing top-line expansion. The company expects to maintain gross margins in the 59-60% range for fiscal year 2025.
Despite these positive initiatives, some analysts project a potential slowdown in revenue and EPS growth in fiscal years 2026 and 2027. This outlook is partly due to expectations of moderating contributions from the AirSense 11 device and the potential impact of GLP-1 pharmaceuticals, which may reduce the number of patients requiring CPAP therapy. However, the company’s attractive PEG ratio of 0.73 suggests the stock may be undervalued relative to its near-term earnings growth potential.
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Bear Case
How might slowing growth rates impact ResMed’s stock performance?
ResMed has demonstrated strong historical growth, with a revenue CAGR of 12% from fiscal year 2019 to 2024. However, analysts project a potential slowdown in both revenue and EPS growth for fiscal years 2026 and 2027. This deceleration could negatively impact investor sentiment and potentially lead to a re-evaluation of ResMed’s stock valuation.
The company’s ability to maintain its premium valuation may be challenged if growth rates fail to meet market expectations. Investors who have become accustomed to ResMed’s robust performance might reassess their positions, potentially leading to downward pressure on the stock price.
What challenges could ResMed face as competition recovers?
As Philips works to resolve its regulatory issues, ResMed may face increased competition in the sleep technology market. The company has benefited from market share gains due to its competitor’s challenges, but this advantage may diminish as the competitive landscape normalizes.
ResMed will need to maintain its focus on innovation and product differentiation to defend its market position. Any loss of market share or pricing pressure resulting from intensified competition could negatively impact the company’s financial performance and growth prospects.
Bull Case
How could ResMed’s expansion into new markets drive growth?
ResMed’s strategic expansion beyond its core sleep apnea market presents significant growth opportunities. The company’s focus on addressing insomnia, COPD, and particularly COMISA (combined insomnia and sleep apnea) could open up new revenue streams and diversify its product portfolio.
By leveraging its existing expertise in sleep technology and respiratory care, ResMed is well-positioned to capture market share in these adjacent segments. Successful penetration of these markets could help offset any potential slowdown in the company’s traditional sleep apnea business and drive long-term growth.
What impact might wearable technology have on ResMed’s market position?
The anticipated increase in CPAP therapy adoption due to wearable technology presents a significant opportunity for ResMed. As a leader in sleep technology, the company is well-positioned to capitalize on this trend and potentially expand its customer base.
Wearable devices could enhance patient engagement, improve therapy adherence, and provide valuable data for both patients and healthcare providers. By integrating wearable technology into its product ecosystem, ResMed could strengthen its competitive advantage and create new avenues for revenue growth through data-driven services and personalized care solutions.
SWOT Analysis
Strengths:
- Strong market position in sleep technology
- Consistent financial performance and execution
- Innovative product portfolio (AirSense 11, masks)
- Efficient operations leading to margin improvements
Weaknesses:
- Dependence on sleep apnea market
- Recent softness in Devices segment revenue
- Potential margin pressures from competition and market dynamics
Opportunities:
- Expansion into adjacent markets (insomnia, COPD)
- Wearable technology adoption driving CPAP therapy growth
- Potential for strategic capital allocation due to strong cash position
Threats:
- Increasing competition as rivals recover from regulatory issues
- Potential impact of GLP-1 drugs on CPAP therapy demand
- Projected slowdown in revenue and EPS growth in FY26-27
- Market share stabilization as competitive landscape normalizes
Analysts Targets
- Piper Sandler: $248 (April 24th, 2025)
- RBC Capital Markets: $255 (April 24th, 2025)
- RBC Capital Markets: $247 (January 31st, 2025)
- KeyBanc: $280 (January 31st, 2025)
- Stifel: $250 (December 12th, 2024)
This analysis is based on information available up to April 24th, 2025.
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