ResMed (ASX: RMD) drops 8% as Astral recall clouds FY27 outlook

ResMed Inc. (ASX: RMD) shares fell 8.29% to A$28.87 on August 7 after the sleep and respiratory care specialist issued fiscal 2027 revenue guidance below market expectations despite delivering record fourth quarter revenue and an earnings beat. Management expects fiscal 2027 revenue of US$5.75 billion to US$5.85 billion, with the suspension of Astral ventilator sales expected to reduce revenue by about US$75 million. The Australian-listed securities traded almost 4.82 million units during the session, well above their recent average, as investors reassessed how quickly ResMed can grow through the combination of product disruption, component inflation and changing treatment options for obstructive sleep apnea.

The selloff creates a more demanding but also more clearly defined investment case. ResMed finished fiscal 2026 with US$5.65 billion of revenue, US$1.52 billion of net income and US$1.65 billion of free cash flow, while its core sleep and breathing business continued growing across devices, masks and accessories. The question for investors is whether the weaker reported fiscal 2027 outlook represents a temporary combination of portfolio changes and the Astral suspension, or the beginning of a structurally slower growth phase.

What does ResMed currently sell and why is its sleep apnea ecosystem difficult to replicate?

ResMed develops connected medical devices and digital health systems used primarily in sleep apnea, respiratory care and home-based healthcare. Its core portfolio includes positive airway pressure devices, masks, accessories, ventilation equipment and software that connects patients, clinicians and home medical equipment providers.

The commercial strength of this model comes from recurring patient use. A person diagnosed with obstructive sleep apnea may require a flow generator for years while regularly replacing masks, cushions, tubing and other components. Connected devices can also transmit therapy data to clinicians and providers, giving ResMed a continuing relationship with the patient rather than a single hardware sale.

ResMed generated US$4.98 billion from Sleep and Breathing Health during fiscal 2026, up 10% year on year. Americas device revenue rose 7% for the year, while masks and other products increased 13%, demonstrating that recurring consumables remain an important growth engine alongside equipment sales.

The portfolio is also becoming more focused. ResMed has agreed to sell its MatrixCare business to Frazier Healthcare Partners, while retaining Brightree in the United States and MEDIFOX DAN in Germany. The MatrixCare sale is expected to close during the first quarter of fiscal 2027, subject to regulatory approvals and customary conditions. ResMed also completed its acquisition of Noctrix Health, adding a wearable therapeutic for restless legs syndrome to its broader sleep health portfolio.

This repositioning matters because investors will increasingly value ResMed as a focused sleep, breathing and connected care company rather than a broader healthcare software group. That makes execution within its core device franchise even more important.

Why did ResMed shares fall when fourth quarter earnings still beat expectations?

ResMed delivered fourth quarter revenue of US$1.464 billion, up 9%, while non-GAAP diluted earnings per share increased 16% to US$2.95. The adjusted earnings result exceeded market expectations around US$2.89 per share, while revenue was broadly in line with forecasts.

Full-year performance was also strong. Fiscal 2026 revenue increased 10% to US$5.653 billion, non-GAAP earnings per share rose 17% to US$11.17 and non-GAAP operating margin expanded 180 basis points to 36.1%. Free cash flow reached US$1.65 billion.

The problem was the forward outlook. Management expects fiscal 2027 revenue between US$5.75 billion and US$5.85 billion, below the roughly US$5.92 billion level expected by analysts before the result. The company also guided to non-GAAP earnings per share of US$12.00 to US$12.25.

ResMed nevertheless expects core constant-currency revenue growth of about 5% to 7%. Reported comparisons are affected by the planned MatrixCare divestiture and the absence of Astral ventilator sales, meaning the headline revenue growth rate understates management’s expectations for the remaining core businesses.

That nuance helps explain why the result is not simply a conventional earnings downgrade. The core sleep franchise remains profitable and growing, but investors had priced ResMed for more consistent high-single-digit or better expansion. Even temporary disruptions can trigger a substantial valuation reset when market expectations are demanding.

What does the Astral Class I recall mean for ResMed’s fiscal 2027 outlook?

The United States Food and Drug Administration classified the correction involving certain Astral 100 and Astral 150 ventilators as a Class I recall on July 31. The affected devices contain a supercapacitor that may leak over time and damage circuitry, potentially causing the ventilator to enter a fail-safe state and stop delivering therapy.

The recall is a correction rather than a blanket removal of the devices from patients. The FDA has advised patients not to stop using affected ventilators unless instructed by a clinician and has recommended that backup ventilation equipment remain available. As of June 23, ResMed had reported five serious injuries and no deaths associated with the issue.

Replacement circuit boards are currently constrained, which means ResMed is prioritising inspections, servicing and corrective actions for existing patients. The company has consequently suspended new Astral sales for fiscal 2027 and is redirecting scarce electronic components towards servicing devices already in use.

Management estimates that the sales suspension will reduce fiscal 2027 revenue by around US$75 million. ResMed has not yet decided whether Astral sales will resume during fiscal 2028.

The financial impact is broader than revenue alone. ResMed recorded approximately US$41.9 million of Astral field safety notification expenses during the fourth quarter, contributing to a GAAP gross margin of 58.8% compared with a non-GAAP gross margin of 62.3%.

For investors, the most important next evidence is therefore not simply whether the US$75 million forecast proves accurate. Progress in replacing affected components, maintaining patient support and preventing further disruption will determine whether Astral remains a contained product issue or creates a longer commercial overhang.

Can ResMed keep growing as weight-loss drugs reshape the sleep apnea market?

One of the larger strategic questions around ResMed has been whether GLP-1 obesity medicines could reduce demand for continuous positive airway pressure treatment. Eli Lilly’s Zepbound is approved in the United States for adults with obesity and moderate-to-severe obstructive sleep apnea, creating a pharmaceutical alternative for some patients.

The relationship is more complicated than a simple substitution story. Weight loss can reduce the severity of obstructive sleep apnea for some patients, but it does not mean every patient will stop needing airway therapy. Diagnosis, disease severity, treatment response and long-term adherence differ considerably between individuals.

At the same time, consumer technology may expand the diagnosed population. Devices capable of identifying possible sleep breathing disturbances can encourage people who were previously unaware of their condition to seek clinical assessment. That creates a potential pathway through which digital screening expands the overall treated market even as pharmaceutical options improve.

ResMed’s fiscal 2026 numbers provide evidence that demand has remained resilient so far. Sleep and Breathing Health revenue increased 10%, while fourth quarter demand was strong across sleep devices, masks and accessories.

The stronger long-term thesis is therefore not that GLP-1 drugs have no effect. It is that the sleep apnea market remains significantly underdiagnosed and may become larger as awareness, screening and treatment options expand. ResMed still needs to demonstrate that its devices remain central to that evolving treatment pathway.

How strong are ResMed’s margins, cash generation and shareholder returns?

ResMed enters the slower fiscal 2027 revenue environment with a strong balance sheet. Cash and cash equivalents reached US$1.47 billion at June 30, while short-term and long-term debt totalled approximately US$659 million.

Operating cash flow reached US$1.81 billion during fiscal 2026 and free cash flow was US$1.65 billion. The company spent approximately US$700 million repurchasing shares and US$350 million on dividends during the year.

ResMed plans to return more than US$1.85 billion to shareholders through buybacks and dividends during fiscal 2027. The quarterly dividend has been increased 10% to US$0.66 per NYSE-listed share, with ASX CDI holders receiving the equivalent amount adjusted for the 10-to-1 CDI ratio and the relevant exchange rate. The securities trade ex-dividend on August 19.

This capital-return programme provides support to earnings per share because repurchases reduce the share count. It also signals that management believes the business can generate more cash than it needs for routine investment.

The risk is that fiscal 2027 introduces more cost pressure. ResMed expects higher electronic component and freight costs and plans price increases because productivity improvements alone are no longer expected to offset inflation fully.

The margin question may therefore become just as important as the revenue forecast. Strong pricing power and continued manufacturing productivity could protect earnings even with slower reported sales growth. A weaker outcome would emerge if higher prices affect demand while component costs remain elevated.

Is the ResMed share price now discounting enough of the weaker FY27 outlook?

ResMed Inc. (ASX: RMD) closed at A$28.87 on August 7, down 8.29% for the session after trading between A$28.87 and A$30.52. Volume reached approximately 4.82 million securities compared with a recent average near 1.86 million.

The stock declined about 3.1% from its July 31 close of A$29.79 despite having rallied above A$31 during the intervening sessions. Compared with the July 7 close of A$31.44, RMD was down approximately 8.2% over one month.

The 52-week range is A$25.50 to A$45.25, leaving the August 7 close about 36% below the annual high but only around 13% above the low. ResMed’s displayed Australian market capitalisation was approximately A$41.9 billion.

The valuation reset is notable because the underlying business remains highly profitable. ASX market data places the stock near 20 times trailing earnings, materially lower than the multiples associated with ResMed when investors were assuming faster long-term growth.

Retail sentiment is therefore likely to divide around one question. The bullish interpretation is that investors are receiving a highly profitable global medical technology business at a lower multiple because of identifiable, potentially temporary headwinds. The cautious interpretation is that the weaker guidance signals a more mature growth profile while product, competition and cost pressures are increasing simultaneously.

The evidence required to settle that debate will come from actual fiscal 2027 execution rather than the August selloff itself.

What are the next measurable catalysts for ResMed investors?

The first near-term event is the August 19 ex-dividend date, followed by the September 24 dividend payment. These events matter for income investors but are unlikely to resolve the larger earnings debate.

The planned MatrixCare sale is expected to complete during ResMed’s first fiscal quarter, subject to approvals and closing conditions. Completion would sharpen the company’s focus on sleep, breathing and connected care while removing part of its residential care software revenue base.

Investors will also watch for further updates on the Astral correction and availability of replacement components. Progress here could reduce uncertainty around the US$75 million revenue impact and clarify whether sales have any realistic pathway to resume after fiscal 2027.

ResMed had not announced the date of its fiscal 2027 first quarter results as of August 9. That report will become the first major financial test of the new guidance, with sleep device growth, mask sales, gross margin, pricing and Astral expenses likely to receive particular attention.

What has improved is profitability, free cash flow and the company’s capacity to return capital. What remains unresolved is whether underlying sleep-market growth can compensate for Astral, inflation and portfolio changes quickly enough to rebuild confidence in the revenue trajectory.

Key takeaways for investors watching ResMed Inc. after the August 7 selloff

• ResMed Inc. (ASX: RMD) fell 8.29% to A$28.87 after fiscal 2027 revenue guidance of US$5.75 billion to US$5.85 billion came in below prior market expectations.
• Fiscal 2026 remained strong, with revenue increasing 10% to US$5.65 billion and non-GAAP earnings per share rising 17% to US$11.17.
• The Astral ventilator correction has been classified by the FDA as a Class I recall, with ResMed suspending new Astral sales during fiscal 2027 and estimating a US$75 million revenue impact.
• ResMed generated US$1.65 billion of free cash flow in fiscal 2026 and ended June with US$1.47 billion of cash against approximately US$659 million of debt.
• Management expects core constant-currency revenue growth of roughly 5% to 7%, while the MatrixCare divestiture and Astral suspension complicate reported growth comparisons.
• RMD now trades about 36% below its 52-week high after the August selloff, substantially reducing the valuation multiple but not eliminating execution risk.
• The next meaningful evidence will come from Astral correction progress, completion of the MatrixCare sale and the fiscal 2027 first quarter results.