TipRanks Smart Value #3: Rest Assured
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Dear Investors,
Dear Investors,
Welcome to the third edition of our brand new TipRanks Smart Value Newsletter!
In each Newsletter, we aim to highlight an undervalued stock poised for long-term gains. Each week, our analysts will identify an overlooked opportunity – a company with strong fundamentals and a resilient business model, whose stock is trading below its intrinsic value.
Our selections will cover all economic sectors, as true Value can be found everywhere – and we will help you find it. Stocks we recommend will have been carefully analyzed and vetted using TipRanks’ data, ensuring you receive well-researched, high-quality opportunities aimed at delivering substantial, long-term value. We will present you with a comprehensive analysis that outlines our selection process, giving you clear insights into why each stock stands out as a top value opportunity.
With that in mind, let’s dive into this week’s top pick and explore why it could be a valuable addition to your Value portfolio.
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This Week’s Top Value Pick: ResMed (RMD)
ResMed (RMD) is a global healthcare company focused on medical devices and digital health solutions for respiratory care and out-of-hospital health management. Its core business revolves around treating sleep apnea and COPD through products like CPAP (continuous positive airway pressure) machines, ventilators, diagnostic tools, and remote monitoring platforms. In addition to devices, ResMed offers cloud-based software that supports home medical equipment providers, sleep labs, senior living operators, and hospice care—extending its ecosystem across both clinical and non-acute care settings.
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Breathing Room to Grow
ResMed was founded in 1989 in Australia to commercialize a breakthrough treatment for obstructive sleep apnea. In 1990, the company established its global headquarters in San Diego, California, and rebranded as ResMed – short for Respiratory Medicine.
While the company initially focused on sleep apnea, it has since expanded into broader respiratory care, including treatments for chronic obstructive pulmonary disease (COPD) and other long-term conditions. A major turning point came in 1995 when ResMed went public on the NYSE, using its IPO to drive global growth and accelerate innovation.
Over the years, it has launched a series of industry-leading products, including the Air10 and Air11 series of cloud-connected CPAP machines and the AirMini—the world’s smallest CPAP device—released in 2017. These launches helped ResMed define the future of connected care in respiratory health. Recognizing the increasing role of software in healthcare, ResMed expanded into Software-as-a-Service (SaaS) to support home medical equipment providers and improve patient outcomes.
It kicked off this strategy with the $800 million acquisition of Brightree in 2016, integrating cloud-based patient monitoring into its ecosystem. By 2023, Brightree managed over 45 million patient accounts. Building on this momentum, ResMed acquired MatrixCare in 2018 and MEDIFOX DAN in 2022, broadening its reach in post-acute care and deepening its European presence.
Today, ResMed operates in more than 140 countries and is recognized as a global leader in digital health and respiratory care. It has a market capitalization of over $32.3 billion and annual revenues of $4.7 billion
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Healthy Innovation
ResMed operates a vertically integrated business model, combining medical device manufacturing, software-as-a-service (SaaS), and digital health solutions. Its revenue is primarily driven by two segments: Sleep and Respiratory Care, and SaaS, which supports out-of-hospital healthcare providers. The Sleep and Respiratory Care segment drives the bulk of ResMed’s revenue, offering CPAP machines, masks, and ventilators for sleep apnea and respiratory conditions. Many of these devices feature proprietary cloud connectivity, enabling remote monitoring through online platforms.
Recurring revenue from mask replacements, tubing, and accessories provides steady cash flow, contributing 35% of revenue in the last twelve months ending December 31, 2024.
To sustain growth, last year, ResMed unveiled its 2030 strategy, focusing on enhancing sleep apnea treatments, expanding into adjacent markets for sleep disorders like insomnia and COPD, and integrating AI and machine learning into its devices. The company has a stated goal of helping over 500 million people achieve their full health potential by 2030.
ResMed invests heavily in R&D, allocating 6-7% of revenue to drive innovation. With nearly 9,900 patents and growing global market penetration, the company remains positioned for long-term earnings growth. RMD has set an ambitious five-year financial outlook, targeting high single-digit revenue growth with earnings growth outpacing revenue expansion.
A key driver of this growth is its software solutions business. Platforms like Brightree and MatrixCare streamline operations for home health agencies and senior living facilities, contributing to an 8% year-over-year growth in fiscal Q2 2025. Additionally, its digital health ecosystem, including AirView and myAir, enhances patient engagement and device utilization. With over 28 million patients using AirView and 8.3 million registered on myAir, the company’s digital ecosystem strengthens provider efficiency and patient outcomes.
The rise of GLP-1 medications used for weight loss and diabetes treatment, presents a new growth opportunity, as data suggests patients prescribed both GLP-1s and PAP (positive airway pressure) therapy adhere better to PAP therapy over the long term.
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Scaling with Purpose
Over the past five years, ResMed has delivered strong financial performance, with revenue and earnings growing at a CAGR of 12.1% and 22%, respectively. This impressive growth has been fueled by increasing demand for sleep devices and masks, the integration of digital health technologies like AirView and Brightree, strategic acquisitions, and geographic expansion.
In fiscal Q2 2025, ResMed’s revenue rose 10% year-over-year to $1.3 billion, surpassing consensus estimates of $1.26 billion. This performance was bolstered by double-digit growth in device sales, reflecting continued high demand for both its AirSense 10 and AirSense 11 platforms. Adjusted EPS jumped 29.3% year-over-year to $2.43, exceeding analysts’ estimates of $2.31. Additionally, gross margin expanded by 300 basis points to 58.6%, benefiting from manufacturing efficiencies and lower component costs.
RMD continues to invest heavily in innovation, allocating $81 million to R&D in fiscal Q2, reinforcing its leadership in digital respiratory care and sleep health. As of LTM Q2 FY25, medical devices comprised 52% of revenue, while SaaS-driven residential care software contributed 13%. Geographically, the Americas accounted for over 50% of revenue, with Europe contributing 29%.
Looking ahead, management expressed confidence in sustaining profitable growth, citing strong demand, product innovation, and global market penetration. AirSense 11 is planned for additional country launches throughout calendar year 2025, expanding the company’s global reach.
ResMed continues to generate strong cash flow, with FCF growing from $236.7 million in LTM Q2 2023 to $1.4 billion in LTM Q2 2025. With a low debt-to-equity ratio of 0.16, the company remains well positioned for long-term sustainable growth.
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Built-In Value
RMD has delivered steady shareholder returns, underpinned by a disciplined capital allocation strategy. The company has paid a dividend for 13 consecutive years, with annual increases in 11 of them. The only pause came during FY20 and FY21 due to pandemic-related uncertainty. Despite a relatively modest dividend yield of 0.94%, analysts attribute high ratings to the company’s dividend safety, consistency, and growth. ResMed’s dividends have grown at a nearly 7% annual rate in the past decade. Given the company’s strong financial performance and modest payout rations, RMD is expected to pay and increase its dividends for years to come.
ResMed also returns capital through share repurchases. In fiscal Q2 2025, the company bought back shares for $75 million and indicated plans to continue repurchases at a similar pace through the rest of the year. Still, it must be said that ResMed prioritizes reinvesting in R&D, acquisitions, and product innovation over higher dividends and buybacks. For income-focused investors, this may seem less attractive, but it reflects a commitment to building long-term value through innovation and market expansion.
RMD stock has risen about 15% over the past year, driven by its strong financial performance and its dominant position in the obstructive sleep apnea (OSA) market. With an estimated 1 billion people globally suffering from OSA – and many still undiagnosed – ResMed has a long runway for growth. The ongoing recall of Philips’ CPAP devices has further expanded ResMed’s market share, reinforcing demand for its devices. Despite the solid performance, with a P/E ratio of 25.9x, ResMed’s stock remains undervalued, trading at 10.5% below the healthcare sector’s average valuation and 41.6% below its five-year average. The company comes at the middle of the price range for its peers in the Medical Device Industry. Additionally, discounted cash flow models indicate that RMD is undervalued by roughly 32%, reinforcing its appeal as a compelling investment opportunity.
Wall Street analysts share this optimism, forecasting an upside of over 25% for the next 12 months. The most bullish projections – coming from well-known Wall Street firms like Morgan Stanley, UBS, KeyBanc – suggest an even more significant gain of more than 30%, reflecting confidence in RMD’s long-term growth strategy.
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Investing Takeaway
ResMed is a global leader in sleep apnea and respiratory care with a growing presence in digital health and out-of-hospital software. The company benefits from long-term structural demand, a vertically integrated model, and a recurring revenue base from devices and software. Fundamentals remain strong and market share has expanded due to competitor disruptions. ResMed’s consistent execution, conservative balance sheet, and steady capital returns offer stability. For investors seeking exposure to long-duration healthcare themes at a discount, ResMed presents a compelling opportunity with both downside protection and upside optionality.
