ResMed
A data‑rich sleep health tollbooth with durable cash compounding
ResMed is the market leader in obstructive sleep apnea therapy outside the U.S. footprint of Philips Respironics, which remains restricted from selling new sleep and respiratory devices in the U.S. until consent decree requirements are met.
ResMed’s device and mask franchises are tightly integrated with its AirView cloud platform, which now supports more than 30 million connected patients and over 10 million myAir‑registered users, creating workflow lock‑in for providers and a growing data advantage for product development and adherence optimization.
The company complements hardware with a recurring Residential Care Software segment that reached $641 million in fiscal 2025, adding resilience to cash flows. Financially, ResMed generated $1.75 billion of operating cash flow in fiscal 2025 and a further $457 million in the September 30, 2025 quarter.
Using the last four reported quarters (Q2–Q4 FY2025 and Q1 FY2026), we estimate TTM free cash flow of roughly $1.77 billion after $115 million of capex, or about $12.0 per diluted share; excluding a one‑time Q3 FY2025 IRS tax refund, normalized TTM FCF is approximately $1.66 billion (~$11.3 per share).
Balance sheet strength is excellent with net cash of roughly $0.7 billion at September 30, 2025. Gross margin has expanded back above 60% as freight and component costs normalized and mix improved. Strategically, the two debated overhangs are GLP‑1 therapeutics for obesity and the eventual U.S. return of Philips Respironics.
The FDA approved tirzepatide (Zepbound) in December 2024 as the first medication for OSA in adults with obesity, but one of the pivotal studies combined the drug with ongoing PAP therapy and the label requires diet and activity changes; how broadly it substitutes for PAP remains uncertain and likely heterogeneous across severity cohorts.
Philips’ remediation roadmap prohibits new CPAP/BiPAP sales in the U.S. until consent decree milestones are met, which continues to constrain a major competitor domestically. Our base case assumes gradual GLP‑1 adoption with mixed substitution and that Philips’ re‑entry, when permitted, narrows but does not erase ResMed’s share gains.
Does ResMed have a strong competitive moat?
ResMed’s moat is multi‑layered. Intangible assets: trusted brand in sleep therapy, deep clinical integration, and roughly 10,000 patents/designs protect key device and mask features (score ~80).
Switching costs: AirView embeds into provider workflows, automating monitoring, triage, compliance reporting, and over‑the‑air updates; moving an installed base of patients and staff training away from this stack is costly (score ~75).
Network effects/data: 30M+ connected patients and 10M+ myAir users create a data feedback loop for algorithms, adherence coaching, and payer/provider reporting; while not a classic two‑sided network, scale advantages are real (score ~70).
Cost advantages: global scale and procurement, optimized manufacturing in Australia/Singapore/US, and logistics normalization have restored margins (score ~65). Efficient scale: U.S. market temporarily concentrated due to Philips’ consent decree, but long term the market supports multiple players (score ~55).
Weighted by importance (switching and data heavier), we arrive at ~78. Key erosion paths include: Philips’ eventual return to the U.S., aggressive mask competition (notably Fisher & Paykel), and AI‑assisted diagnostics commoditizing certain software layers.
Does ResMed have pricing power in its industry?
Gross margin expanded to 59–62% across FY2025–Q1 FY2026 on procurement, manufacturing and logistics efficiencies and product mix, indicating some ability to pass through costs and maintain premium positioning.
Durable pricing is stronger in masks/consumables and software than in devices where reimbursement and competitive bids limit list‑price leverage. AirView‑enabled adherence and remote monitoring drive value for providers, supporting pricing for software and service bundles.
Latent power exists if Philips’ U.S. re‑entry is slow, but we assume this tailwind fades. Overall: solid but not monopolistic pricing power, with sustainable contribution from masks and software.
How predictable is ResMed's business?
Revenue has compounded to $5.15B in FY2025 (+10% YoY) with Q1 FY2026 up 9% constant currency. Predictability stems from recurring resupply of masks and the Residential Care Software segment (~$641M in FY2025, +10% YoY).
Device cycles and payer policies add variability, but the large undiagnosed OSA population (hundreds of millions globally) and increasing sleep health awareness provide multi‑year demand support.
GLP‑1 OSA therapy introduces a new variable; pivotal data included a PAP‑on arm, and real‑world adherence/cost will determine substitution vs complementarity. We model steady mid‑single to low‑double‑digit growth with periodic lumpiness from product cycles and reimbursement changes.
Is ResMed financially strong?
ResMed generated $1.75B operating cash flow in FY2025 and $457M in Q1 FY2026, with modest capex (~$115M TTM) producing robust free cash flow. As of September 30, 2025, cash was ~$1.38B against ~$668M of debt, implying ~+$0.7B net cash. GAAP operating income rose to $1.69B in FY2025; ROE remained above 20%.
The company raised its quarterly dividend to $0.60 in July 2025 and repurchased ~$300M of shares in FY2025 plus ~$150M in Q1 FY2026, all while growing cash balances. Liquidity and interest coverage are excellent, and the balance sheet provides ample flexibility for organic investment and bolt‑on M&A.
How effective is ResMed's capital allocation strategy?
Capital deployment balances R&D ($294M in FY2025), targeted M&A (e.g., May 2025 VirtuOx to streamline diagnostics), dividends ($2.12/share FY2025, raised to $0.60 quarterly), and buybacks ($300M FY2025; $150M in Q1 FY2026). Stock‑based compensation is moderate ($92M FY2025) and offset by repurchases.
Management has prioritized margin restoration and supply chain resilience over near‑term share gains, which we view positively. We see discipline on acquisitions and continued investment in software, AI/ML, and diagnostics that reinforce the ecosystem.
Does ResMed have high-quality management?
Chairman and CEO Mick Farrell and long‑tenured CFO Brett Sandercock have navigated semiconductor shortages, freight inflation, and a competitor recall while driving a strategic pivot to an integrated hardware‑software ecosystem outlined at the 2024 Investor Day.
Execution is evident in margin recovery, cash generation, and disciplined capital deployment. Management is transparent on GLP‑1 and Philips risks and continues to invest in demand generation, product pipeline (AirSense/AirCurve 11, masks), and scaled software platforms. Governance and communications quality are strong.
Is ResMed a quality company?
ResMed is a good quality company with a quality score of 84/100
- TTM free cash flow ≈ $1.77B reported (≈ $12.0/share) and ≈ $1.66B normalized (≈ $11.3/share), supported by >60% gross margins and a net cash balance.
- AirView scale and data create workflow lock‑in: 30M+ connected patients and 10M+ myAir users, reinforcing adherence and provider efficiency.
- Residential Care Software (SaaS) reached ~$641M FY2025 revenue (+10% YoY), adding recurring, less cyclical cash flows.
- Philips remains barred from selling new U.S. CPAP/BiPAP devices pending consent decree compliance, sustaining ResMed’s domestic advantage.
- GLP‑1 approval for OSA introduces uncertainty but not outright displacement; pivotal data included a PAP‑on arm and the label targets adults with obesity.
What is the fair value of ResMed stock?
Is ResMed a good investment at $252?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.