##{"id":59049,"date":"2011-10-26T11:47:06","date_gmt":"2011-10-26T00:47:06","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/10\/26\/resmed-has-become-a-post-fy12-story\/"},"modified":"2011-10-26T11:47:06","modified_gmt":"2011-10-26T00:47:06","slug":"resmed-has-become-a-post-fy12-story","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/10\/26\/resmed-has-become-a-post-fy12-story\/","title":{"rendered":"ResMed Has Become A Post FY12 Story"},"content":{"rendered":"

\n\t– ResMed<\/span> quarterly falls short on flow generator sales
\n\t– Company exiting less profitable market segments
\n\t– Stockbrokers cautious as move may impact on top line growth
\n\t– Opinions on ResMed<\/span> remain divided<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tSleep disorder group ResMed<\/span> ((RMD<\/span>)) lifted 4Q<\/span> sales by 12% to US$315 million but this result was behind the market consensus estimate of $327 million. The shortfall reflected a decline in US flow generator sales, partly the result of ResMed<\/span> deciding to exit less profitable market segments.<\/p>\n

\n\tOn the positive side, Deutsche Bank notes mask sales for ResMed<\/span> remained strong during the period, rising by 17% when adjusted for foreign exchange moves. With management moving out of low margin market sectors, gross margins were higher than expected.<\/p>\n

\n\tBut for Deutsche Bank these positives are offset by the unexpected contraction in US device sales in the period. Deutsche Bank suggests this implies increased risk of price competition and distributor market power, something that could be made worse by competitive bidding.<\/p>\n

\n\tThe risk in Deutsche's view is ResMed's<\/span> strong position in the fast growing and resilient mask business may be diluted, which could translate to more subdued earnings growth while the operating environment remains difficult.<\/p>\n

\n\tAs RBS<\/span> points out, there appears to be a growing disconnect among all participants in the sleep disorder market, as while ResMed<\/span> is undergoing a mix shift from lower priced basic devices to higher-end units, payers are decreasing reimbursement levels through competitive bidding.<\/p>\n

\n\tThis implies the decision by ResMed<\/span> to hold price lines are a precursor to losses of market share, while top-line growth is also likely to be impacted. RBS<\/span> also suggests there are increased risks to ResMed's<\/span> main annuity stream through lower accessory sales. This all adds up to limited scope for share price outperformance<\/span> over the medium-term.<\/p>\n

\n\tOne positive is ResMed<\/span> will now be cycling weaker comparable sales numbers, though as Goldman Sachs suggests the fact the company has now reported four consecutive quarters of soft growth is a reasonable bellweather<\/span> for the medium-term growth outlook.<\/p>\n

\n\tFrom a longer-term perspective, UBS continues to see upside, suggesting ResMed<\/span> has opportunities in ventilation and high end CPAP<\/span> machines. As well, recent share price weakness increases the chances of a more aggressive share buyback in the broker's view.<\/p>\n

\n\tOn the back of the quarterly update from ResMed<\/span>, securities brokers covering the stock have in general made minor changes to earnings estimates. RBS<\/span> Australia has lifted FY12<\/span> earnings per share (EPS) forecasts by 2.5%, while UBS has lowered its EPS forecast for the year to US18c<\/span> from US19.6c<\/span> previously. <\/p>\n

\n\tGoldman Sachs has also trimmed its EPS estimates by 3.5% in FY12<\/span> and by 2.6% in FY13<\/span>, reflecting lower flow generator sales growth assumptions offset by upgrades to gross margin assumptions. Changes to forecasts have impacted on price targets, Goldman Sachs lowering its target to $3.00 from $3.35 previously and Citi<\/span> to $4.13 from $4.39. <\/p>\n

\n\tCredit Suisse is the only broker to change its rating on ResMed<\/span> post the quarterly, downgrading to a Neutral recommendation from Outperform previously. This reflects the view RedMed<\/span> appears fair value at current levels given existing growth issues in the US flow generators market.<\/p>\n

\n\tOverall, the FNArena<\/span> database shows ResMed<\/span> is rated as Buy three times and Hold five times, while Goldman Sachs also rates ResMed<\/span> as a Hold. This reflects the view while the stock appears attractive on FY13<\/span> metrics, the focus of the market remains FY12<\/span>.<\/p>\n

\n\tThe brokers with Buy ratings are looking beyond the current year, adopting a longer-term approach that suggests value once the market moves past its current tough trading conditions. As BA-ML notes, this should become even more apparent as benefits of a product mix shift being undertaken by ResMed<\/span> eventually flow through.<\/p>\n

\n\tShares in ResMed<\/span> today are weaker and as at 11.35am<\/span> the stock was down 8c<\/span> at $2.53. This compares to a trading range over the past year of $2.49 to $3.60.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"