Morgan Stanley downgrades ResMed stock rating on margin concerns By Investing.com

Morgan Stanley downgraded ResMed to Equalweight from Overweight and cut its price target to $230 from $286, citing limited near-term margin expansion, modest earnings growth, and FX/component cost headwinds. The firm now sees fiscal 2027 gross margin at 62.4% versus 62.8% consensus and net profit after tax of $1.704B, 4% below consensus. Offset partially by strong recent Q3 results, the stock still trades below the new target at $193.94 after the Noctrix acquisition and mixed analyst commentary.

Analysis

The important read-through is not simply that RMD’s margin trajectory is cooling; it is that the market may be underestimating how quickly its earnings quality can decelerate once FX and component inflation reassert. For a business priced like a premium defensible compounder, even a 100-150 bps gross margin miss can compress the multiple disproportionately because the valuation has been anchored to steady upward revisions rather than top-line acceleration. The downgrade also signals that the easy post-supply-chain-recovery margin expansion phase is likely behind it, which makes future beats more dependent on pricing discipline and mix than on operational leverage.

Competitive dynamics are more interesting than the headline implies. If Philips re-enters the U.S. market with credible supply and pricing, the first-order hit is share, but the second-order effect is that channel incentives and rebate economics worsen for everyone, including ResMed, before volumes actually move. That means the pressure can show up in forward gross margin expectations well before revenue data visibly softens; the market usually waits for shipment data, but the multiple often de-rates when investors model lower terminal margins and slower price realization.

The contrarian case is that this may be a setup for a slower, not broken, compounding story. If FX stabilizes and ResMed offsets costs with price increases, consensus may be too conservative on operating leverage once Noctrix is integrated and the market digests the earnings mix. The key question is whether GLP-1-related pressure is a near-term demand issue or a longer-duration structural headwind; if it proves overstated, the stock can re-rate quickly because the current debate is centered on margin durability, not existential growth loss.

Key Decisions for Investors

• Short RMD into strength over the next 2-6 weeks if it trades toward the revised sell-side target band; risk/reward favors fading rallies because the next revision cycle is more likely to be estimate cuts than upgrades.
• If maintaining exposure to healthcare growth, rotate from RMD into higher-visibility devices with cleaner near-term margin setup; use a relative-value basket rather than outright sector de-risking.
• Consider a bearish call spread on RMD for the next 3-6 months to express a controlled downside view; the thesis is multiple compression from terminal margin and competitive concerns rather than a collapse in fundamentals.
• For longer-term investors, wait for a post-earnings or post-guidance flush before re-entering long RMD; the best entry is likely after the market has fully priced in FX and Philips re-entry risk.
• Pair idea: long a healthcare name with stable margin expansion and short RMD to isolate execution dispersion; the trade should work if investors continue to reward visibility over premium growth narratives.