RESMED INC (RMD) stock intrinsic value fair value estimate & owner earnings analysis

ResMed makes the devices, masks and accessories used to treat obstructive sleep apnea (OSA) and other respiratory conditions, and also sells software that home health, hospice and home-care agencies use to run their operations (Brightree, MatrixCare and MEDIFOX DAN), plus a small new addition in restless-legs-syndrome therapy (Noctrix, acquired June 2026). The device and mask business is the core: masks and other consumables are replaced every few months per patient, so a large share of revenue repeats year after year, and the pool of people with undiagnosed sleep apnea remains enormous. Owner earnings (cash generated after the reinvestment needed to sustain the business, with stock-based compensation and working-capital swings stripped out) have grown from about $2.76 per share a decade ago to $11.06 in the fiscal year just completed. Some of that strength reflects a temporary tailwind: a major competitor, Philips, has been restricted from freely selling replacement devices in the US since a 2021 recall, handing ResMed outsized share gains since 2022. We used $7.97 per share -- the median of the last five fiscal years -- as the normalized starting point, rather than the most recent peak, since all five of those years benefited from Philips's absence to some degree. Growth slowed sharply in the fiscal year just completed: owner earnings per share rose only about 5%, versus roughly 33% the year before. We used that recent, slower pace -- not the earlier, faster one -- as the starting point for our growth assumptions, because we could not find a specific, dated reason in the company's filings for growth to reaccelerate immediately. Instead, our base case has growth troughing near that recent pace before gradually recovering over several years toward the high-single-digit rate the business sustained for years before the pandemic and the Philips recall -- when Philips was still a full, un-recalled competitor -- and then easing again in the back half of the decade as Philips re-enters and the category matures. We think this recovery is reasonable given real, ongoing growth drivers: real-world data the company has presented, covering more than three million patients, suggests patients on weight-loss drugs (GLP-1s) actually start and stay on therapy at higher rates than other patients, not lower; the software and international businesses continue to expand; and the new restless-legs-syndrome device adds a further avenue for growth. Substantial recent spending on equipment and facilities -- which we treated as ordinary reinvestment rather than a growth catalyst we could point to directly, since the company did not name a specific expansion project -- is a further reason for near-term caution. Two debates matter most to the years ahead. First, whether weight-loss drugs eventually reduce the population that needs sleep-apnea therapy -- the data so far points the other way, but it is early. Second, when and how aggressively Philips returns to the US market at scale; the company says it cannot predict the timing, and while Philips has publicly said it intends to price near pre-recall levels rather than discount, competitive pressure on both price and share is a real risk once its devices once again have full clearance to ship a complete lineup. Our bear case assumes Philips returns faster and more aggressively than its own public statements suggest, sparking real price competition, while weight-loss-drug adoption modestly slows the rate at which new, milder patients start therapy. Owner earnings per share drift down over the next couple of years before stabilizing at a lower, slower-growing level -- still a real, profitable business, just a smaller and more competitive one than today. Our bull case assumes Philips remains a marginal US competitor well past this decade, weight-loss drugs turn out to be unambiguously additive to therapy adoption, and the software and international businesses compound faster than expected. Owner earnings grow at a strong double-digit rate for several years before settling into a more moderate pace. Because a durable, non-wasting consumables business like this one has a very long runway, a large share of our estimate -- roughly two-thirds in the base case -- rests on what the business earns beyond the next ten years, not just the next decade. We valued that tail as a slow-growing perpetuity, on the view that ongoing mask-replacement revenue and the reinvestment already built into our cash-flow figure will keep renewing the installed base, without assuming the business keeps compounding anywhere near its recent pace forever. Readers should understand that this long-run assumption is doing much of the work in the final number. One accounting judgment: cash flow in several recent years was heavily distorted by inventory swings tied to global supply-chain disruptions (a large build in fiscal 2022, a multi-year unwind since). We stripped these working-capital swings out of owner earnings in every year, which is why the underlying trend looks smoother than reported operating cash flow. We also treated the roughly $1 billion MEDIFOX DAN software acquisition (2023) as a growth investment rather than an ordinary cost of running the business; the software segment's contribution shows up in the revenue and earnings growth assumptions rather than as a separate line. Putting the three cases together, and given that a meaningful share of the current earnings level still reflects a competitor's temporary absence from the market, we think a real discount to our base-case estimate is warranted before this looks like a clear opportunity, rather than simply a good business at a fair price.