ResMed and the Price of a Durable Moat
What the business is
A good moat can still sit behind an expensive gate.
ResMed sells CPAP and BiPAP devices for obstructive sleep apnea, then supplies the masks, cushions, filters, software, and services that keep treatment running. The device establishes the relationship; consumables and software make it recurring. Consumables and services account for roughly 35–40% of revenue, while recurring revenue grew about 12% in FY2025.
This is more than a hardware franchise. Patients become accustomed to myAir and fitted masks, while physicians and medical-equipment distributors build workflows around AirView and Brightree. ResMed’s cloud ecosystem contains data from 28 million patients. That embedded workflow creates switching costs, and the data can improve adherence tools and product design. Its global CPAP device share is estimated at 55–60%.
The thesis also cites roughly 9,700 patents and manufacturing scale. FY2025 revenue was $5.1 billion, with a 60% non-GAAP gross margin and an operating margin of about 33%. The latest operating observation supplied here, FY2026 Q4, showed a 62.3% non-GAAP gross margin and 11% growth in masks and consumables. Those figures supported the moat as of that quarter; without later operating evidence, they are not proof that the same trend has continued through today.
The important uncertainty is demand, not whether the machines work. ResMed’s observed patient data suggested that GLP-1 therapy was complementary: patients prescribed it after an OSA diagnosis were 10.7 percentage points more likely to begin PAP treatment, with stronger later resupply rates. That evidence concerns the current generation of drugs. Durable disease resolution from later treatments could change the economics.
Philips re-entry, reimbursement pressure, and a possible reversal in new PAP setups are the other useful tripwires. Moats rarely send formal resignation letters.
What the numbers say
- Market cap (price-adjusted, 2026-09-25 close): $32.20 billion
- Owner-earnings yield (price-adjusted): 4.87%
- Share price (2026-09-25 close): $222.00
- 10-year Treasury: 5.18%
The immediate arithmetic is unromantic. A 4.87% owner-earnings yield sits below a 5.18% Treasury, producing a spread of negative 0.31 percentage points. Equity owners take business, competitive, and execution risk without receiving a higher current yield in this comparison.
The price-adjusted market capitalization also stands 79% above the low end and 40% above the high end of the desk’s $18–23 billion intrinsic-value range. That range was framed using a conservative 12-times owner-earnings case and a 15-times growth case. Low treatment penetration and recurring revenue support the upper case; long-term GLP-1 substitution risk restrains the multiple. The main business risk therefore enters the range through the selected multiple rather than through a detailed cash-flow scenario.
That makes the range useful, though hardly sacred. The supplied materials do not provide a complete period-and-adjustment bridge from approximately $1.7 billion of FY2025 free cash flow to the owner-earnings numerator behind the price-adjusted yield. I therefore treat the 4.87% owner-earnings yield as the stated screening arithmetic, not as an independently reconciled measure of normalized earning power.
Capital allocation has generally been sensible. ResMed had increased its dividend for 14 consecutive years, most recently by 13% to an annual $2.40. Repurchases were $300–500 million in FY2025, with an indicated increase to more than $800 million in FY2027. Acquisitions have focused on adjacent software and sleep markets rather than unrelated empire building. The screening snapshot also recorded a five-year average return on equity of 22.5% and debt-to-equity of 0.06.
Those are marks of a productive business. They do not repeal the purchase price.
What Wall Street believes vs what I see
The available headlines are distinctly optimistic. They describe significant upside, a fear-driven selloff creating a compelling margin of safety, and GLP-1 threats as overstated. That mood has a defensible foundation: ResMed has leading share, recurring consumable demand, embedded software, strong margins, and patient data that had not shown GLP-1 treatment displacing PAP adoption.
I agree more with the business diagnosis than with the valuation conclusion. Fear can make an asset cheaper than it was without making it cheap. At a $32.20 billion market capitalization, ResMed remains above the full $18–23 billion intrinsic-value range supplied by the thesis.
The yield comparison is equally plain: a 4.87% owner-earnings yield against a 5.18% Treasury does not compensate for uncertainty about drug substitution, competitive re-entry, reimbursement, or management execution. Growth could improve that arithmetic over time, but paying in advance for improvement is not the same thing as receiving a margin of safety.
Wall Street’s headlines see a misunderstood compounder. I see a strong franchise whose price still assumes that much of the compounding arrives on schedule.
Verdict
Verdict: pass.
The 4.87% owner-earnings yield is below the 5.18% Treasury, so the shares fail the rubric’s watch threshold. The $32.20 billion market capitalization is also 79% above the $18 billion low end and 40% above the $23 billion high end of intrinsic value, leaving no valuation cushion. I would change the verdict if price or owner earnings lifted the yield above the Treasury, with a circle also requiring the rubric’s wider yield advantage and deeper valuation discount.
This analysis is AI-generated, educational, and not investment advice. Figures may contain errors or be delayed. Disclaimer