Baird analysts say that the recall of certain sleep and respiratory devices by Royal Philips (NYSE:PHG) may benefit ResMed (NYSE:RMD).
Earlier this month, Amsterdam-based Philips provided an update on the April 26 recall for some bi-level PAP and CPAP ventilator devices with a foam component problem, with the company expecting revenue headwinds in its sleep and respiratory care business to be compensated by the performances of its other businesses. It elected not to change financial guidances provided with the initial recall announcement.
Analysts at Baird, however, noted that there is an opportunity for ResMed to get a jump on Philips amid the recall with its respiratory products, although there is a high degree of difficulty as far “meaningfully capitalizing on this disruption,” and few clear answers exist right now.
ResMed, one of the top-performing stocks of 2020, saw a 4.6% rise from market open to market close on June 14, the day Philips issued its update. The stock, which closed that day at $231.70 per share, has risen to as high as $242.50 per share in the week since then in the fallout of the recall.
The Baird report claimed that ResMed sales could grow by $100 million to $300 million, should approximately 10% to 20% of the affected Philips respiratory care machines move to ResMed. Analysts noted that one durable medical equipment provider that was historically a Philips shop, “placed a big ResMed order.”
Doctors told the analysts that the “degree of difficulty in meaningfully capitalizing on this disruption seems more like a three-point jump shot, potentially with a hand in face, than a layup.” A lot remains to be seen as far as ResMed’s ability to scale manufacturing to meet potential demand, should users of Philips devices look for alternatives.
