Morgan Stanley cuts ResMed stock price target on market competition By Investing.com

Morgan Stanley cut its price target on ResMed to $286 from $310 while keeping an Overweight rating, citing a bear-case valuation tied to a potential Philips U.S. re-entry in 2026 and higher SG&A. The stock trades at $221.02, near its 52-week low of $216.68, despite second-quarter fiscal 2026 EPS of $2.81 beating estimates of $2.73 on $1.4 billion in revenue. Analyst views are mixed, with RBC and KeyBanc raising targets while Needham and Stifel stayed at Hold.

Analysis

RMD is setting up as a classic expectations-reset trade: the stock is already pricing in a meaningful portion of the downside scenario, so the next leg is less about absolute fundamentals and more about whether the upcoming print confirms that the feared competitive disruption is still a 2026 problem rather than a near-term one. If management shows any resilience in ASPs, mask/accessory pull-through, or patient starts, the multiple can re-rate quickly because a lot of investors are anchored to the left-tail Philips narrative rather than the company’s own execution.

The second-order issue is not just competition, but the operating leverage of defending share. A U.S. re-entry by a legacy competitor would likely pressure RMD to spend ahead of revenue, which matters more than top-line share loss because it can compress margins even if unit volumes stay healthy. That means the real battleground is SG&A and physician-channel economics over the next 2-4 quarters; if those remain contained, the bear case weakens materially.

Consensus appears to be missing how asymmetric the setup becomes around the earnings date. With the stock near the lower end of its range and the balance sheet/d1vidend profile intact, downside may be limited unless guidance explicitly validates a sharper 2026 competitive hit, while any commentary that implies normalizing growth or stable utilization can force short-covering. The market is also likely underestimating the signaling value of a beat combined with raised confidence in organic growth; that would shift the debate from valuation to durability, which is where RMD historically earns a premium.

Key Decisions for Investors

• Initiate a tactical long RMD ahead of earnings with a 2-6 week horizon; risk/reward favors a 10-15% upside re-rating if guidance de-risks the 2026 competitive overhang, with downside contained if the print is merely in line.
• Buy RMD calls or call spreads into the print rather than common stock if implied volatility is reasonable; this captures a potential post-earnings squeeze while capping risk if management sounds cautious.
• For hedged exposure, pair long RMD vs short a higher-beta medtech/healthcare equipment name with weaker valuation support over the next 1-3 months; the objective is to isolate earnings-quality and balance-sheet quality within the sector.
• If management explicitly signals rising SG&A to defend share, fade the bounce and sell RMD strength into the first post-earnings rally; margin compression is the cleaner way the bear case reasserts itself than outright revenue disappointment.
• Use the print as a catalyst check on the 2026 threat model: if physicians remain supportive and utilization stays firm, add on confirmation for a 3-6 month hold, since the market is likely over-discounting a competitor re-entry that is still far in the future.