ResMed Shares Downgraded: Trimmed Price Target Offers Some Comfort To Bulls

ResMed shares (ASX: RMD) have been trading lower in the US session overnight, with the NYSE listed share price down 2% early. The pullback comes as ResMed was downgraded by Morgan Stanley analysts from Overweight to Equal Weight, cutting its price target to $230 from $286, warning that the sleep apnoea device maker’s extraordinary growth run may be cooling ahead of renewed competition from Philips in 2027.

The ResMed share price rounded out Wednesday’s ASX session at A$27.55, up 0.58 percent on the day of the downgrade, whilst the New York-listed stock trades at US$190. Whilst Morgan Stanley has downgraded the stock, and trimmed it’s price target, the potential upside from here to the fresh $230 price target remains a very healthy 21%.

A View From The Street: Why Downgrade RMD?

Morgan Stanley analyst David Bailey’s downgrade centres on a straightforward thesis: the tailwinds that have propelled ResMed are set to moderate.

The company has posted annual earnings growth of 19 percent and revenue growth of 11 percent over the past three years, capitalising on Philips’ recall-driven absence from the United States device market. However, Bailey now models lower revenue growth going forward, primarily due to the assumed re-entry of Philips into the U.S. market in 2027.

The analyst’s note emphasises that Morgan Stanley remains constructive on ResMed’s medium to longer-term opportunity, given the structural drivers of obstructive sleep apnoea prevalence including ageing demographics and obesity trends. The firm’s concerns are focused squarely on the near-term earnings outlook as the competitive landscape normalises.

Tougher Comps Ahead

ResMed’s recent financial performance has been exceptional by most measures. The company’s third quarter fiscal 2026 results delivered adjusted earnings per share of approximately US$2.86, representing roughly 21 percent year-on-year growth. Revenue and margins came in ahead of market expectations, with ongoing gross margin expansion driven by normalising freight costs, improved product mix, and higher-margin software and data solutions growth.

The margin story has been particularly compelling, with gross margins expanding by hundreds of basis points over multiple quarters. This improvement reflects not only operational leverage but also the growing contribution from ResMed’s cloud-connected device ecosystem and recurring consumables business, which includes masks and other accessories that patients replace regularly.

Yet despite these strong fundamental results, the share price response to recent earnings has been subdued or even negative. Markets have repeatedly sold the stock following earnings beats, suggesting that valuation rather than operational execution has become the primary concern. The pattern indicates that much of the good news from market share gains and margin expansion may already be reflected in the current share price, which remains 23% lower since the start of this year.

Upcoming Headwind

The anticipated return of Philips to the U.S. sleep device market represents the most concrete near-term headwind in Morgan Stanley’s analysis. Since Philips initiated a massive recall of its continuous positive airway pressure devices due to concerns over foam degradation, ResMed has captured significant market share in the world’s largest and most profitable sleep apnoea market.

This windfall has been substantial. ResMed has enjoyed elevated growth rates and enhanced pricing power whilst a major competitor has been effectively sidelined. The company’s installed base has expanded considerably, locking in recurring revenue from mask and consumable sales as well as subscription-based digital health services.

As Philips works through regulatory clearances and ramps production, analysts across the Street are now modelling a 2027 timeframe for meaningful re-entry into U.S. distribution channels. This normalisation of competition is expected to compress both ResMed’s incremental unit growth and potentially its pricing flexibility, particularly in the device segment where Philips historically commanded strong share.

GLP-1 Overhang Moderating?

Concerns over GLP-1 drugs such as Ozempic and Wegovy represented a significant overhang on ResMed’s valuation through much of the past eighteen months. The initial market reaction to these weight loss medications was severe, with investors fearing that effective obesity treatments could reduce the incidence or severity of obstructive sleep apnoea and thereby cut demand for continuous positive airway pressure devices.

More recent analysis has tempered these concerns. Clinical data suggests that whilst weight loss can improve sleep apnoea symptoms, the relationship is complex and many patients require ongoing CPAP therapy even after significant weight reduction. Additionally, GLP-1 penetration rates remain relatively low, adherence challenges persist, and weight regain upon discontinuation is common.

The stock has rallied considerably from its GLP-1-driven lows as markets have reassessed the durability of CPAP and mask demand. The prevailing view among bulls is that GLP-1 drugs represent a manageable headwind rather than a structural thesis breaker. However, bears continue to argue that over a five to ten year horizon, improved metabolic health from these medications may flatten the growth curve for obstructive sleep apnoea devices, and that the market may continue to assign a lower multiple due to this long-tail uncertainty.

What Comes Next for ResMed?

Morgan Stanley’s rating change should be interpreted as a signal that the extraordinary growth phase fuelled by Philips’ absence is maturing rather than as a fundamental break in the investment thesis. The broker explicitly maintains a constructive view on ResMed’s medium to long-term prospects, suggesting that the company’s structural advantages remain intact even as near-term growth moderates.

For markets, the downgrade provides a more conservative baseline from which to evaluate future results. If ResMed can maintain double-digit earnings growth and continue expanding margins through fiscal 2027 despite normalising competition, the current valuation may prove attractive in hindsight. Conversely, if Philips’ re-entry proves more disruptive than currently modelled or if GLP-1 adoption accelerates faster than expected, further multiple compression could follow.

The key debate centres on whether ResMed deserves to trade as a must-own growth medical technology stock commanding a premium multiple, or whether it should be valued as a mature, mid-teens grower in a competitive market. Morgan Stanley’s move to Equal Weight suggests the latter framework is more appropriate for the next twelve to twenty-four months, even whilst acknowledging the quality of the underlying franchise.