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Here's Why You Should Retain DexCom (DXCM) Stock for Now
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DexCom, Inc. (DXCM - Free Report) is well poised for growth in the coming quarters, backed by its strong product portfolio. A robust second-quarter 2023 performance, along with a series of favorable coverage decisions, is expected to contribute further. However, risks related to stiff competition persist.
This Zacks Rank #3 (Hold) company’s shares have fallen 7.1% year to date compared with the industry’s 4.9% decline. The S&P 500 Index has gained 17.3% in the same time frame.
DXCM, a renowned medical-devices company and provider of continuous glucose monitoring (CGM) systems, has a market capitalization of $40.67 billion. It projects 42.9% growth over the next five years and expects to maintain the strong performance going forward.
DexCom’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 28.83%.
Image Source: Zacks Investment Research
Let’s delve deeper.
Strong Product Demand: We are upbeat about DexCom's continued strength in its Continuous Glucose Monitoring (CGM) products.
The company continues to expand its product portfolio with the addition of new products like DexCom One and G7 sensor. This has helped accelerate its growth. Sales of these products have reflected strong demand since their launch late last year. Moreover, DXCM’s focus on expanding into new geographies is also boosting the business. Earlier this month, the company launched its latest device, DexCom One, in France with reimbursement coverage.
Accurate and effective product performance, coupled with simplicity of use, is driving adoption of new CGM devices in the company’s portfolio. DexCom stated that 8,000 physicians prescribed its CGM devices (who had previously not done so) during the second quarter.
Meanwhile, the company’s plan to expand its product portfolio beyond intensive insulin use will further benefit the top line going forward.
New Product Launch: In June, Dexcom announced that it is currently developing a new product with a 15-day sensor, designed specifically for diabetic patients who are not on insulin. The company is planning to launch the new product in the United States in 2024.
Positive Coverages: DXCM’s products have been receiving increasing coverage over the past few months, raising our optimism. The company’s G7 CGM System is already covered by all major pharmacy benefit managers in the United States following the launch late last year. In 2022, the company expanded public coverage for type 1 and type 2 diabetic patients (aged two years and above) who are on multiple daily injections of insulin (three or more) or who use an insulin pump leveraging its G6 CGM System via Prince Edward Island’s Diabetes Glucose Sensor Program.
DexCom ended the second quarter with new patient additions.
The Ontario government began coverage for the Dexcom G6 CGM System through the province’s Assistive Devices Program. This program has been designed for provincial people with type 1 diabetes, who are above the age of two and meet the coverage criteria.
Strong Q2 Results: DXCM’s solid second-quarter 2023 revenues buoy optimism. Rising volumes across all channels, along with new customer additions due to increasing global awareness of the benefits of real-time CGM, contributed to the upside. In June, the company raised its guidance for 2025, based on robust demand for its products in the previous two years. The company now expects additional $500 million in revenues (from that projected earlier).
Impressive contributions from the Sensor segment, and domestic and international revenue growth were the key catalysts. Additionally, the glucose monitoring market presents significant commercial opportunities for DXCM.
Downsides
Rising Costs: The company’s gross margin contracted 180 basis points during the second quarter to 62.7%, reflecting the rising cost of sales. It expects adjusted gross margin of approximately 63% for 2023, indicating persisting cost pressure.
Stiff Competition: The market for blood glucose monitoring devices is highly competitive, subject to rapid changes and new product introductions. DXCM’s competitors manufacture and market products for the single-point finger stick device market and collectively account for the worldwide sales of self-monitored glucose testing systems at present.
Estimate Trend
DexCom is witnessing an improving estimate revision trend for 2023 and 2024. In the past 60 days, the Zacks Consensus Estimate for earnings per share has increased from $1.07 to $1.23 for 2023 and from $1.50 to $1.59 for 2024.
The consensus mark for the company’s third-quarter 2023 revenues is pegged at $936 million, indicating a 21.6% improvement from the year-ago quarter’s reported number. The same for earnings is pinned at 34 cents per share, implying growth of 21.4% year over year.
Some better-ranked stocks in the broader medical space are Align Technology (ALGN - Free Report) , HealthEquity, Inc. (HQY - Free Report) and McKesson Corporation (MCK - Free Report) .
ALGN’s earnings surpassed estimates in two of the trailing four quarters and missed twice, delivering an average negative surprise of 1.76%. The company’s shares have risen 53.1% year to date compared with the industry’s 11.5% growth.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 22%. HQY’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 9.1%.
The company’s shares have rallied 13.8% year to date against the industry’s 10.3% decline.
McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.7%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 8.1%.
The stock has rallied 12.1% year to date compared with the industry’s 11.5% growth.
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Here's Why You Should Retain DexCom (DXCM) Stock for Now
DexCom, Inc. (DXCM - Free Report) is well poised for growth in the coming quarters, backed by its strong product portfolio. A robust second-quarter 2023 performance, along with a series of favorable coverage decisions, is expected to contribute further. However, risks related to stiff competition persist.
This Zacks Rank #3 (Hold) company’s shares have fallen 7.1% year to date compared with the industry’s 4.9% decline. The S&P 500 Index has gained 17.3% in the same time frame.
DXCM, a renowned medical-devices company and provider of continuous glucose monitoring (CGM) systems, has a market capitalization of $40.67 billion. It projects 42.9% growth over the next five years and expects to maintain the strong performance going forward.
DexCom’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 28.83%.
Image Source: Zacks Investment Research
Let’s delve deeper.
Strong Product Demand: We are upbeat about DexCom's continued strength in its Continuous Glucose Monitoring (CGM) products.
The company continues to expand its product portfolio with the addition of new products like DexCom One and G7 sensor. This has helped accelerate its growth. Sales of these products have reflected strong demand since their launch late last year. Moreover, DXCM’s focus on expanding into new geographies is also boosting the business. Earlier this month, the company launched its latest device, DexCom One, in France with reimbursement coverage.
Accurate and effective product performance, coupled with simplicity of use, is driving adoption of new CGM devices in the company’s portfolio. DexCom stated that 8,000 physicians prescribed its CGM devices (who had previously not done so) during the second quarter.
Meanwhile, the company’s plan to expand its product portfolio beyond intensive insulin use will further benefit the top line going forward.
New Product Launch: In June, Dexcom announced that it is currently developing a new product with a 15-day sensor, designed specifically for diabetic patients who are not on insulin. The company is planning to launch the new product in the United States in 2024.
Positive Coverages: DXCM’s products have been receiving increasing coverage over the past few months, raising our optimism. The company’s G7 CGM System is already covered by all major pharmacy benefit managers in the United States following the launch late last year. In 2022, the company expanded public coverage for type 1 and type 2 diabetic patients (aged two years and above) who are on multiple daily injections of insulin (three or more) or who use an insulin pump leveraging its G6 CGM System via Prince Edward Island’s Diabetes Glucose Sensor Program.
DexCom ended the second quarter with new patient additions.
The Ontario government began coverage for the Dexcom G6 CGM System through the province’s Assistive Devices Program. This program has been designed for provincial people with type 1 diabetes, who are above the age of two and meet the coverage criteria.
Strong Q2 Results: DXCM’s solid second-quarter 2023 revenues buoy optimism. Rising volumes across all channels, along with new customer additions due to increasing global awareness of the benefits of real-time CGM, contributed to the upside. In June, the company raised its guidance for 2025, based on robust demand for its products in the previous two years. The company now expects additional $500 million in revenues (from that projected earlier).
Impressive contributions from the Sensor segment, and domestic and international revenue growth were the key catalysts. Additionally, the glucose monitoring market presents significant commercial opportunities for DXCM.
Downsides
Rising Costs: The company’s gross margin contracted 180 basis points during the second quarter to 62.7%, reflecting the rising cost of sales. It expects adjusted gross margin of approximately 63% for 2023, indicating persisting cost pressure.
Stiff Competition: The market for blood glucose monitoring devices is highly competitive, subject to rapid changes and new product introductions. DXCM’s competitors manufacture and market products for the single-point finger stick device market and collectively account for the worldwide sales of self-monitored glucose testing systems at present.
Estimate Trend
DexCom is witnessing an improving estimate revision trend for 2023 and 2024. In the past 60 days, the Zacks Consensus Estimate for earnings per share has increased from $1.07 to $1.23 for 2023 and from $1.50 to $1.59 for 2024.
The consensus mark for the company’s third-quarter 2023 revenues is pegged at $936 million, indicating a 21.6% improvement from the year-ago quarter’s reported number. The same for earnings is pinned at 34 cents per share, implying growth of 21.4% year over year.
DexCom, Inc. Price
DexCom, Inc. price | DexCom, Inc. Quote
Stocks to Consider
Some better-ranked stocks in the broader medical space are Align Technology (ALGN - Free Report) , HealthEquity, Inc. (HQY - Free Report) and McKesson Corporation (MCK - Free Report) .
Align Technology, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 17.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ALGN’s earnings surpassed estimates in two of the trailing four quarters and missed twice, delivering an average negative surprise of 1.76%. The company’s shares have risen 53.1% year to date compared with the industry’s 11.5% growth.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 22%. HQY’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 9.1%.
The company’s shares have rallied 13.8% year to date against the industry’s 10.3% decline.
McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.7%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 8.1%.
The stock has rallied 12.1% year to date compared with the industry’s 11.5% growth.