Morningstar | Transferring Coverage of ResMed
We raise our fair value estimate for ResMed to USD 101 from USD 100, owing to the time value of money, following transfer of analyst coverage. We increase our fair value estimate for the Australian CDI to AUD 14.20 from AUD 13.50, principally due to a weaker Australian dollar, with the exchange rate currently around USD 0.71 per AUD 1. Our narrow moat, stable moat trend, and medium uncertainty ratings remain intact.The sleep apnoea market is effectively a duopoly, with ResMed and Phillips, formerly Respironics, together commanding the lion’s share of the market. Despite having to catch up to first mover Respironics, we think ResMed has carved out a narrow economic moat with its technically superior devices and effective marketing, supporting the firm’s intangible assets. The firm's marketing and education efforts are raising the clinical profile of sleep-disordered breathing and increasing awareness of sleep apnoea in particular. Moreover, while competition is increasing in masks and at the low-tech end of flow generators, ResMed's integrated product suite creates an application ecosystem in sleep apnoea, thereby strengthening switching costs for clinicians and patients.
ResMed's product suite remains well-positioned for growth. Most people suffering from sleep apnoea aren’t treated and hence a significant portion of the firm's potential addressable market remains underpenetrated. We expect market penetration to increase with increasing awareness of the condition, along with home testing becoming more prevalent. We expect this to drive a revenue CAGR of 9% for the firm. Last trading at USD 102.69 and AUD 14.38, respectively, shares and CDIs in ResMed are close to being fairly valued.
ResMed is a holding company. Through its operating subsidiaries, the company is engaged in the development, manufacturing, distribution and marketing of medical devices and cloud-based software solutions that diagnose, treat and manage respiratory disorders including sleep disordered breathing, chronic obstructive pulmonary disease, neuromuscular disease and other chronic diseases. The company has two operating segments: Sleep and Respiratory Care and Software-as-a-Solutions. The company's portfolio of products includes devices, diagnostic products, mask systems, headgear and other accessories, dental devices, portable oxygen concentrators and cloud-based software informatics solutions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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