Collected Wisdom

This week we look at Resmed, Medibank Private, South32 and Treasury Wine Estates.

Summary: Resmed beat analyst expectations at last week’s quarterly update, while higher health insurance operating profits at Medibank Private saw price targets adjusted upward. South 32 continues to face subdued commodities prices, and Chinese New Year sales should help Treasury Wine Estate’s earnings.

Key take out: Resmed’s US sales were well received, with analysts optimistic for future growth.

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

Resmed Inc. (RMD)

Resmed continues to deliver. The maker of sleep aid products beat the majority of analysts’ expectations as management gave its quarterly update to the market last Thursday from San Diego. Revenue was up 7 per cent to $454.5 million. Cash flow was strong for the quarter at $147.4m, and on top of that, Resmed bought back 700,000 shares.

Key highlights for brokers following the Resmed story were the good sales of flow generators and masks in the US. The bulk of analysts continue to have an optimistic outlook for RMD with one stating they believed the company, with its acquisitions and market share, is setting itself up for double-digit growth into the future.

The consensus still has RMD as a buy, but some were not as pleased as others, pointing towards the aggressive pricing leading to lower margins. These lower margin products are the fastest growing for RMD.

The RMD price target has been steadily increasing over time and it now sits at $8.80 with the most bullish cash at $10.29. The most bearish case is set at $8.35 – this is a shade above the share price at the time of writing of $8.28.

Investors are generally advised to buy Resmed Inc. at current levels.

Medibank Private Limited (MPL)

Medibank Private’s share price got a shot in the arm on Friday (January 22) gaining $0.30 after the update on its health insurance targets for FY16. Health insurance operating profit was higher than expected, coming in at $270m.

Off the back of this figure management upgraded guidance with the standout being operating profit changing to $470m. The company had previously anticipated a figure “above $370m”. MPL is starting to gain a reputation of consistently exceeding its guidance.

This upgrade has seen most analysts adjust their price targets upwards, even those with a sell on the stock. The consensus on MPL is a hold. Those positive on MPL see the growth prospects coming from the potential of further fat to be trimmed through cost outs.

Those making the bearish case point towards regulatory uncertainty, due to the current review of benefits.

At the time of writing, Medibank was trading just below the average price target of $2.63 at $2.52. The most bullish case has a price target of $2.97 with the bearish case weighing in at $2.10

Investors are generally advised to hold Medibank Private Limited at current levels.

South 32 Limited (S32)

The main catalyst for earnings growth, of course, is commodity prices – and they remain subdued.

The average price target for S32 has been heading south from the outset, starting from $2.50 and now sitting at $1.26. At the time of writing the S32 share price was $0.955, implying decent upside to the average price target. But as mentioned above, the unanswered question is when will this company see a commodity price recovery? 

Investors are generally advised to hold South 32 at current levels.

Treasury Wine Estates (TWE)

From one spin off to another. The former Fosters spin off, Treasury Wine Estates, also issued a trading update last Thursday. The wine producer anticipates earnings to beat analyst consensus coming in between $140m - $150m. Previous expectations were $120m.

Management pointed to strong sales in Asia, especially leading into Chinese New Year in February. Analysts have commented they expect to see ongoing demand in Asian markets. Management also said the Diageo Wine acquisition was integrating well.

Analysts generally remain positive on TWE and they can see further upside coming from Asian consumption and the opportunity for growth in the premium end of TWE’s offering which currently isn’t selling well.

Despite the positive tone in reports, analysts agree it is currently all in the share price. The average price target is $8.26 with the share price sitting at $8.80 at the time of writing. As a result of the very strong share price, the analysts have this stock as a hold

Investors are generally advised to hold Treasury Wine Estates at current levels.