ResMed’s third-quarter fiscal 2025 result was solid and broadly met our forecasts.

Underlying EBIT grew 2% on the second quarter of fiscal 2025, on higher revenue despite typical seasonal softness and currency headwinds. Gross margin was a highlight, expanding 70 basis points sequentially to 60% on manufacturing and distribution efficiencies.

A two-player market with a long runway for growth

ResMed (ASX: RMD) is taking a “smart devices” and Big Data approach to further entrench itself as one of the two leading players in the global obstructive sleep apnea, or OSA, market.

With cloud-connected devices, physicians can monitor patient compliance and encourage continued use. Higher adherence supports both reimbursement rates from payers and the resupply of masks and accessories.

ResMed also plays a key role in producing clinical data that demonstrates treatment can minimize related risks such as hypertension, stroke, heart attack and Alzheimer’s disease. Through its own testing devices and education, ResMed seeks more widespread diagnosis and treatment of OSA.

The global OSA homecare device market is a two-player duopoly with over 80% estimated market share split between ResMed and Philips, with ResMed the market leader in the majority of the 140 countries it competes in.

The market offers a large global growth opportunity as penetration within developed markets is estimated at one fifth of the roughly 15% prevalence, and emerging markets are essentially untapped.

In the US, we estimate roughly half of the 22 million people diagnosed with OSA are treated with continuous positive airway pressure, or CPAP, with another 34 million remaining undiagnosed.

ResMed operates in over 140 countries with over 900 million people estimated to have sleep apnea globally, indicating the long runway for growth.

What about tariffs and GLP-1 drugs?

ResMed’s US volumes are mostly sourced from Singapore and Australia but are imported under a chapter of the Harmonized Tariff Schedule that provides tariff exemption for its sleep apnea products. ResMed is also doubling its US manufacturing footprint in June 2025.

GLP-1 drugs remain a positive for now. ResMed gathered data on 1.4 million sleep apnea patients prescribed a GLP-1 drug. It found that participation and mask resupply rates are higher in the sample population versus sleep apnea patients who have not been prescribed a GLP-1 drug.

Shares still look undervalued

We keep our USD 275 fair value estimate, or AUD 43 per CDI, for narrow-moat ResMed. Shares are undervalued, likely given we are more optimistic than the market as to its ability to take advantage of the growing awareness of sleep apnea.

The global sleep apnea market is underpenetrated, with most patients being undiagnosed. A key trend boosting new patient diagnoses is wearable technologies, such as the Apple Watch, that track sleep health and can detect signs of sleep apnea.

Our forecast five-year revenue and EBIT compound annual growth rates for ResMed are 8% and 11%, respectively, broadly consistent with ResMed’s five-year guidance for high-single-digit revenue growth and even higher earnings growth.

ResMed (RMD)

  • Moat rating: Narrow
  • Fair Value estimate: $43 per CDI
  • Star rating: ★★★★

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.