Citi slaps buy rating on ResMed shares

The buy ratings keep piling in for ResMed.

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ResMed Inc (ASX: RMD) shares are in the red so far in 2025.

After slipping from 52-week highs of $40.50 in January, shares in the respiratory device company currently fetch $35.71 apiece.

This brings the stock back to its September 2024 levels.

With shares at these depressed levels, investment bank Citi has lifted its rating on ResMed overnight from a hold to a buy rating. Let's dive in and see.

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Citi upgrades ResMed shares

Citigroup upgraded ResMed shares to a buy in a note to clients on Thursday, revising the price target to $44 apiece.

As reported by Fintel, the investment bank projects ResMed's profits to grow until 2027 and likes its "reasonable valuation".

This follows buy ratings from fellow brokers RBC Capital Markets and Goldman Sachs in recent weeks.

Goldman is bullish on ResMed shares due to the company's "ongoing robust new patient growth for CPAP therapy" for obstructive sleep apnoea (OSA).

It also notes the company's "number 1 market position" in the OSA treatment market.

More broadly, ResMed shares are rated a buy from the consensus of analyst estimates, according to CommSec.

Only 1 broker recommends selling the stock. This compares to nineteen buys and nine holds. Safe to say the view is skewed to bullish at the time being.

Where to next for ResMed?

ResMed shares have started the year well. But their future direction depends largely on the operations of its underlying business.

The OSA specialist grew revenues by 10% year over year in Q4 2024, clipping in US$1.3 billion in sales on a 19% rise in operating profit.

It also trades on a price-to-earnings (P/E) ratio of nearly 28x, meaning investors pay $28 for every dollar of the company's profits.

But according to CommSec, consensus analyst estimates project the company to grow net profits by 256% over the next two years.

This would see earnings increase from 11 cents per share to $1.41 per share by FY27.

The forward P/E ratio, adjusted for this growth, is 25x, a nearly 10% reduction if ResMed hits these numbers.

Brokers also project a more than 10% growth in dividends over the same period, where the company could pay 36.5 cents per share.

This equals a 1% forward yield at the time of writing.

Foolish takeaway

Citi has upgraded its rating on ResMed shares to a buy, joining a long list of fellow brokers in doing so.

Whilst the outlook seems positive, expectations are high. Time will tell if these are met by the healthcare company.

RedMed is up 24% in the past year.

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Citigroup is an advertising partner of Motley Fool Money. Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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