ResMed's Sleep Business Booms as Astral Ventilator Troubles Weigh on Results

On August 6, ResMed (NYSE: RMD) reported fourth-quarter fiscal 2026 results capping a year of double-digit growth. Quarterly revenue rose 9% to $1.5 billion, and non-GAAP earnings per share jumped 16% to $2.95. For the full fiscal year, which closed June 30, 2026, revenue grew 10%, and free cash flow topped $1.6 billion.

The company also laid out fresh fiscal 2027 guidance alongside a string of portfolio moves investors now have to weigh. While the core sleep apnea business continues to thrive, headwinds from the Astral ventilator line and portfolio adjustments are creating a complex picture for shareholders.

Bull Case: Sleep Demand Keeps Compounding

ResMed's core sleep apnea business continues to find new growth avenues, defying earlier concerns that weight-loss drugs might reduce demand for CPAP therapy.

Management cited a dataset of more than 2.5 million de-identified patients showing that people prescribed both a GLP-1 drug and PAP therapy are 11% more likely to start on PAP than patients with a PAP script alone. Additionally, these patients are more likely to reorder supplies at both the one- and three-year marks, suggesting sustained therapy adherence.

At 90 days after diagnosis, over 40% of patients had started PAP versus under 3% on a GLP-1. This evidence suggests weight-loss drugs are steering patients toward CPAP rather than away from it, a finding that contradicts earlier market concerns about the impact of GLP-1s on the sleep apnea market.

Partnerships and Platform Expansion

A new partnership with wearable maker Oura has already sent roughly 13,000 users to ResMed's sleep assessment, three-quarters of them previously undiagnosed. This represents a significant opportunity for market expansion, as many individuals with sleep apnea remain undiagnosed and untreated.

The AirSense 11 platform is expanding into China, one of the world's largest and fastest-growing healthcare markets. The expansion into China provides a significant growth opportunity, given the country's large population and increasing awareness of sleep disorders.

New AirCurve 11 bilevel devices have just launched in several markets, expanding ResMed's product portfolio and providing additional revenue streams. Fabric masks like the AirTouch N30i are driving measurably higher patient compliance, as they offer greater comfort and ease of use compared to traditional masks.

Shareholder Returns

ResMed also raised its quarterly dividend 10% to $0.66 per share, demonstrating confidence in its financial position and commitment to returning value to shareholders. The company plans to return over $1.85 billion to shareholders in fiscal 2027, up more than 75% from the previous year.

The substantial increase in shareholder returns reflects the company's strong cash generation and its confidence in future growth prospects. For income-focused investors, the dividend increase is a positive signal of the company's financial health.

Bear Case: The Astral Problem Lingers

Despite the strong performance in its core business, ResMed's quarter carried real costs that investors must weigh.

Life support device revenue, which includes the Astral ventilator line, fell 45% in the Americas and 38% in the rest of the world after ResMed suspended new Astral sales to prioritize parts for existing patients under an ongoing field safety action. The company booked a $42 million provision tied to that action, reflecting the financial impact of addressing the issue.

ResMed expects the pause to shave about 130 basis points, or roughly $75 million, off fiscal 2027 revenue. The impact is significant enough to affect the company's overall growth trajectory and has been a key concern for investors.

Financial Pressures

Free cash flow fell 21% year over year to $404 million, pressured by that provision along with higher receivables and capital spending. The decline in free cash flow, despite revenue growth, is a concern for investors who value cash generation as a measure of financial health.

Operating margin slipped 10 basis points even as gross margin expanded, while R&D spending jumped 22% and SG&A rose 10% on a headline basis. The increase in operating expenses reflects the company's investment in innovation and market expansion, but it also puts pressure on profitability.

Portfolio Adjustments

The pending sale of the MatrixCare software unit is expected to cost about $0.30 per share in dilution, as the company divests a non-core asset. The Noctrix acquisition, which adds a new therapeutic area to ResMed's portfolio, is expected to cost another $0.20 per share in dilution.

These portfolio moves reflect ResMed's strategic focus on its core sleep and respiratory businesses, but they come at a cost to earnings in the short term. Investors will be watching to see whether the divestiture and acquisition generate long-term value that offsets the near-term dilution.

Guidance Slows

Fiscal 2027 guidance calls for reported EPS growth of just 7% to 10%, well below the 16% non-GAAP growth ResMed just posted. The significant slowdown in expected EPS growth reflects the combined impact of the Astral issues, portfolio adjustments, and increased operating expenses.

For investors accustomed to double-digit earnings growth, the slower guidance is a sobering reminder that even the strongest companies face headwinds. The question is whether the growth slowdown is temporary or indicative of longer-term challenges.

What's Next for ResMed?

As ResMed navigates the challenges of its Astral ventilator issues and portfolio transitions, investors will be watching several key factors:

1. Resolution of Astral Issues: The duration and cost of the Astral field safety action will significantly impact fiscal 2027 results. Investors will be looking for clarity on when new Astral sales can resume and whether the issues have been fully resolved.

2. Integration of Noctrix: The successful integration of Noctrix and its potential to expand ResMed's therapeutic offerings will be a key driver of future growth.

3. China Expansion: The expansion of AirSense 11 into China represents a significant growth opportunity. Execution will be critical to realizing this potential.

4. Competitive Dynamics: ResMed faces competition from a range of players in the sleep and respiratory device market. Its ability to maintain market share and pricing power will be crucial.

5. Shareholder Returns: The company's commitment to returning capital to shareholders provides a floor for the stock, but investors will want to see evidence that the business remains on a strong growth trajectory.

Analyst Perspectives

Analysts have mixed views on ResMed's outlook. The company's core sleep business remains strong, with compelling evidence that GLP-1 drugs are complementary rather than competitive to CPAP therapy. The Oura partnership and China expansion also offer significant growth potential.

However, the Astral issues and slower EPS guidance have raised concerns about near-term earnings growth. The $42 million provision and expected $75 million revenue headwind are significant, and the dilution from portfolio moves will weigh on earnings.

The key question for investors is whether the growth slowdown is temporary. If ResMed can resolve its Astral issues and successfully integrate Noctrix while continuing to grow its core sleep business, the stock may present a buying opportunity. However, if the challenges persist or the growth slowdown proves longer-lasting, the stock could face further pressure.

ResMed delivered strong fiscal 2026 results, with 10% revenue growth and a 16% jump in non-GAAP EPS. The company's core sleep apnea business is thriving, driven by partnerships, platform expansion, and favorable trends in the GLP-1 market. The dividend increase and planned shareholder returns also reflect confidence in the company's financial position.

However, the Astral ventilator issues and slower fiscal 2027 guidance are significant headwinds. The $42 million provision, expected revenue impact, and dilution from portfolio moves have tempered investor enthusiasm.

For long-term investors, ResMed's strong market position, growth opportunities in China and other markets, and commitment to innovation and shareholder returns provide a compelling investment case. However, the near-term challenges warrant careful consideration.

As the company navigates this transitional period, investors will be watching closely for signs that the Astral issues are being resolved and that the growth slowdown is temporary. The medical device giant's ability to execute on its strategy will determine whether the current dip represents a buying opportunity or a longer-term concern.