Weakness in this Healthcare Giant is an Opportunity – 7/14

Company: ResMed (SYM: RMD)

Weakness is an opportunity with ResMed (SYM: RMD).

Over the last few weeks, ResMed, which makes masks and continuous-positive-airway-pressure (CPAP) machines, gapped from about $215 to about $180. All after Eli Lilly said its Zepbound weight loss drug helped to reduce the severity of obstructive sleep apnea.

However, according to a Barron’s report, “Only a few hundred thousand will stop using them, and perhaps a few thousand more that might have been diagnosed with OSA—and used the company’s flow generators—won’t because of the drugs.”

If that’s the case, Needham analysts say RMD would lose about $37 million in 2024 revenue, which is less than 1% of estimates of $4.8 billion in 2024 sales.

In short, the pullback was an overreaction.

We also have to consider that even though millions may be on the weight loss drugs now, they may not choose to use them long term. In addition, as also noted by Barron’s, “ResMed also has room for considerable growth. Almost a billion people worldwide have mild to severe OSA, according to the National Council on Aging. The company currently treats tens of millions of them, so there are plenty of new patients for the company to serve in the future.”

With that, investors may want to use RMD weakness as a buy opportunity.