The RESMED/IDR UNRESTR (ASX: RMD) share price wasn't spared from today's market sell-off but UBS thinks this is a great time to be buying the sleep disorder treatment device maker's share price.
The ResMed share price tumbled 1.7% to $15.99 in late afternoon trade as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index shed 0.9% on escalating trade tensions between the US and China.
Most sectors are wallowing in the red apart from defensive stocks like utilities provider AGL Energy Limited (ASX: AGL), gold stock Regis Resources Limited (ASX: EVN) and industrial property company Goodman Group (ASX: GMG).
Strong quarterly paints a bright outlook
But this could be a good time to buy the dip in ResMed's share price after UBS upgraded the stock to "buy" from "neutral" and as its business is not directly impacted by the trade spat between US President Donald Trump and China's supremo Xi Jinping.
UBS lifted its recommendation on the stock following ResMed's stellar third quarter market update, which was much better than the broker had been anticipating.
The US-focused company reported a 15% increase in sales thanks to stronger than anticipated demand for its products from markets outside the US, while its gross margin of 59.3% was around 20 basis points higher than UBS' forecast.
"Our prior conservatism on sustainability on RMD's US re-supply growth appears misplaced with the company generating >10% 12-month rolling average revenue growth through the past 5 quarters," said the broker.
"Furthermore, with the success of Brightree (and opportunities from recently released analytics modules) and a re-badged Resmed Resupply offering, we do not believe saturation of growth will occur in the short-to medium term. Recent mask launches (and share shift) may add to overall category growth although this will be less consequential in the short term."
Buy the dip
While some have also cheered initial traction made by ResMed's software as a service (SaaS) offering, UBS thinks the path to higher profits in this business remains unclear, although it added that the ongoing robust core sleep therapies performance mitigates the risk.
The broker has upgraded its earnings per share estimates for ResMed by around 5% over the forecast periods and that sees its price target increase by US$10 per share to US$119 (for ResMed's US listed stock, which implies a target price of around $17 for the Australian-listed security).
ResMed looks better priced to me than its well-known peer, the Cochlear Limited (ASX: COH) share price.
But if you are looking for other well-priced stocks on the ASX and don't mind the shorter-term market volatility, you should follow the free link below.
