Benzinga | Jun 16, 2021 01:16PM EDT

5 Reasons Why ResMed Gets Downgrade From BofA Securities

Although ResMed Inc's (NYSE:RMD) long-term outlook is positive, the market seems to have over-reacted to rival Koninklijke Philips NV's (NYSE:PHG) recall notification of certain sleep and respiratory care devices for the U.S., according to BofA Securities.

The ResMed Analyst: Lyanne Harrison downgraded the rating for ResMed from Neutral to Underperform, while raising the price target from $216 to $221.

The ResMed Thesis: Although the company is poised to benefit from Philips's recall, the magnitude could be significantly less than what the market is expecting, Harrison said in the downgrade note.

The analyst mentioned 5 reasons for this:

* The recall is related to the earlier DreamStation model.

* Philips has already launched DreamStation2 (DS2) in the U.S. and its launch in Europe is imminent.

* "Patient urgency is key ... Where less urgent, patients may consider a short wait for the DS2, a longer wait for RMD's AirSense11 (US launch late CY21) or the AirSense 10 now," she wrote.

* Patients have postponed being diagnosed through the COVID-19 pandemic and waiting for DS2 or AS11 "may not be burdensome."

* ResMed faces "supply chain issues, higher freight costs and competition for components which may limit its ability to capitalize on the recall," Harrison noted.

Whilst RMD does not have a similar issue regarding foam degradation, it acknowledges it is monitoring ozone cleaning use for its products and has communicated its warranty position to minimize financial impact," she added.

RMD Price Action: Shares of ResMed are up 0.14% to $236.80 at the time of publication Wednesday.

(Photo by Possessed Photography on Unsplash)