Ventilator Maker ResMed’s Future Sparks Debate on Wall Street

(Bloomberg) -- There's no question on Wall Street as to whether ResMed Inc. will see short-term gains during the global pandemic due to increased demand for the ventilators it manufactures. But there's less certainty around the future of the stock.

The medical equipment maker's revenue rose in the last quarter to $769.5 million, a 17% jump from the same time last year, fueled by the need for ventilators. The machines work like artificial lungs, allowing patients whose respiratory systems have been overwhelmed by the coronavirus to keep breathing. Chief Executive Officer Michael Farrell told investors on the earnings call after the results that ResMed had tripled production of the devices compared with a year ago.

The news scored the stock an upgrade from Oppenheimer & Co. and sent shares climbing as much 5.6% Friday, far ahead of a market sell-off. But the medical device manufacturer wasn't able to shake skeptics, including JPMorgan Chase & Co., who slapped the stock with a downgrade and a lower stock price target.

The debate around ResMed illustrates the wider uncertainty created by the Covid crisis, which has created opportunities for some companies well-positioned to make the most of it but dealt catastrophic blows to others.

While Oppenheimer noted the company's core business, manufacturing sleep aid products, slid because of the virus, it said other business drummed up by the pandemic would serve as “strong offsets”.

“The bullish tone on the call, and more importantly, incremental demand over the next couple of quarters based on [the] company's visibility into orders presents a nice buffer in the current environment,” analyst Suraj Kalia said in a note. Oppenheimer upgraded ts rating on ResMed to outperform from market perform.

But JPMorgan, expecting softening economic conditions worldwide and weaker U.S. healthcare spending, downgraded the stock to underweight from neutral and lowered the price target to $140 from $145.

“We believe the weaker earnings outlook is not reflected in the current elevated share price,” analyst David A. Low said.

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