ResMed Is Selling You a Recall Story. The Numbers Say It's a One-Year Headwind.

ResMed fell nearly 6% after-hours Thursday when fiscal Q4 results landed. Revenue of $1.46 billion missed the $1.47 billion estimate by roughly $10 million. EPS topped expectations at $2.95. The headlines read "miss and conservative outlook."

The market is pricing a growth slowdown. The numbers say the business is still accelerating, just with a known, quantified, and temporary roadblock in the path.

Here's what matters.

The Astral recall is the entire story — and it ends in 18 months

ResMed has suspended sales of its Astral 100 and Astral 150 hospital ventilators due to a faulty supercapacitor that can leak electrolyte and, in rare cases, cause the device to stop working. The company took a $42 million provision in Q4. Through all of fiscal 2027 (ending June 2028), no new Astral units will be sold.

Management quantified the drag: roughly $75 million in lost revenue and about $0.15 of EPS. That's the first time a public company has ever walked through the math of a ventilator recall this cleanly.

The guidance they gave — their first annual guidance as a public company — bakes this headwind in. Revenue growth of 5% to 7% for FY2027 looks soft against 9–11% recent growth rates. But management explicitly said underlying core growth is "north of 6% to north of 8%" once you add the Astral drag back in. EPS of $12.00–$12.25 carries the recall hit plus dilution from the MatrixCare divestiture (~$0.30) and Noctrix acquisition (~$0.20). Strip those out and core EPS growth is 12% to 14%.

This is not a structural crack. It's a one-year accounting bump. By fiscal 2028, the Astral issue is resolved, the M&A noise has settled, and the comparables are clean.

Free cash flow is the hard part, and ResMed still prints it

Trailing free cash flow is $1.63 billion on revenue of roughly $5.8 billion — a 31.4% FCF margin. ROIC sits at 21.5%. Gross margin hit 62.3% in Q4, up 90 basis points year-over-year, driven by supply-chain efficiency gains that management said will continue through 2027.

The balance sheet looks like a company that can afford to wait out a recall: $1.47 billion in cash, only $2.38 billion in total debt, and a net-cash position of roughly $810 million. Debt-to-equity is 10%. The quick ratio is 242%. This is not a company that needs every unit to ship on time to stay solvent.

Total shareholder returns for FY2027 are guided to exceed $1.85 billion — more than double last year — funded by a 10% dividend increase to $0.66 per share and a $1.5 billion share repurchase program (including a $450 million accelerated buyback tied to the $490 million MatrixCare sale).

The market is still reading the old headline

Shares are down roughly 21% from the 52-week high of $294. Year-to-date, the stock is negative 7.3%. The tape tells a simple story: growth is slowing, a product is on the shelf, guidance came in at the bottom of expectations.

That story would be accurate if the Astral recall were a symptom of broader operational failure. It isn't. ResMed deliberately set guidance low because the Astral suspension is front-loaded entirely into FY2027. The company is choosing to under-promise on a year that includes a known $75 million revenue hole and then deliver on a clean FY2028.

Three analysts had already trimmed their estimates before earnings. The market is pricing in trouble it can see, not trouble that's growing.

Beyond the recall, the portfolio reset is working. Selling MatrixCare (a residential care software business that contributed $220 million in FY2026 revenue and $58 million in operating profit) and acquiring Noctrix Health ($340 million for a restless-legs device maker) sharpens ResMed's focus on sleep and respiratory care — its highest-margin, highest-growth core. This isn't scattergun M&A. It's portfolio optimization.

And there's a tailwind management flagged that deserves attention: their data across 2.5 million patients shows those on both PAP therapy (the CPAP devices ResMed dominates) and GLP-1 weight-loss drugs are 11% more likely to start PAP treatment and 6% more likely to resupply after three years. The obesity-drug boom is feeding the sleep-health funnel, not cannibalizing it.

The financial bridge

The setup is straightforward. FY2027 EPS of $12.00–$12.25 includes the Astral hole and M&A noise. Underlying core EPS is roughly $12.50. At a 12–14% growth rate, FY2028 core EPS runs approximately $14.00–$14.50.

ResMed currently trades at roughly 23 times forward earnings. A 25x multiple on a medtech compounder with 21% ROIC and 30%+ FCF margins is not aggressive — it's what the market already paid before the recall dragged the stock down. At 25x and $14 EPS, the stock is worth roughly $350.

That's a two-year horizon — fiscal 2028 ends June 2028, giving the business the full 12-month recovery cycle plus one clean reporting quarter to prove it.

The tripwire is equally specific. If the Astral recall expands beyond the current scope — the company's guidance assumes the supercapacitor issue is contained to units manufactured before July 2023 — or if Q1 FY2027 gross margins contract materially beyond the component-cost headwind management already flagged, the bridge breaks. Management warned Q1 may see slight gross margin compression as electronic component costs outpace productivity gains. A meaningful breach of that expectation — say gross margins falling below 60% — would suggest the supply-chain story is fraying beyond a seasonal bump.

Cutting without ego if that happens is the discipline. The recall itself is priced in. The risk is scope creep.

What to do

ResMed is not an exciting name right now. The recall dominates the narrative. That's precisely why the gap between tape pain and business pain is widest. The operating path has not broken. The cash flow is intact. The headwind is dated, quantified, and temporary. By the time fiscal 2028 results roll in, the Astral issue will be a footnote, the M&A will be integrated, and the market will have to reassess whether a medtech compounder printing 30% FCF margins deserves to trade at 23x after it was selling at 30x.

This is the kind of reset that creates entries. The bar is low. The trajectory underneath is still positive. The financial bridge is explicit.

Target: ~$350 by June 2028. Tripwire: Gross margins below 60% in FY2027, or Astral recall scope expansion beyond management's current guidance.

If either fires, the thesis changes. Until then, the business is doing exactly what it was supposed to do during a product suspension: keep cash flowing, keep margins elevated, and wait for the clean year on the other side.