Why ResMed Inc. Shares Slipped Today

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of ResMed slipped 1% today after Deutsche Bank downgraded the medical equipment distributor from buy to hold.

So what: Along with the downgrade, analyst David Low reiterated his price target of $52, representing just 3% worth of upside to yesterday's close. So while momentum traders might be attracted to ResMed's year-to-date price strength, Low's call could reflect a sense on Wall Street that the regulatory risks surrounding its growth trajectory are being largely overlooked.

Now what: According to Deutsche, ResMed's risk/reward trade-off isn't too appealing at this point. "The Centers for Medicare & Medicaid Services (CMS) has issued a release to update among other things, details of the roll-out of Competitive Bidding (CB) round 3 and the phase in of special payment rules (i.e. "bundled funding")," said Rubis. "While there is the possibility the proposals will be knocked back, if implemented, the near term impact will likely be modest given bundled funding will only to be implemented in 12 areas. However, in the medium term this reform could materially slow mask sales growth if implemented widely (i.e. followed by private payors)." When you couple that seemingly real risk with ResMed's 20-plus P/E, it's tough to disagree with Deutsche's cautious stance. 

Leaked: This coming blockbuster will make every biotech jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

The article Why ResMed Inc. Shares Slipped Today originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story