Yahoo Finance Reasons to Retain DexCom (DXCM) Stock in Your Portfolio for Now
DexCom, Inc. DXCM is well poised for growth in the coming quarters, backed by its strong product portfolio. A robust fourth-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 risen 7.8% year to date compared with the industry’s 1.7% growth. The S&P 500 Index has increased 5.5% in the same time frame.
DXCM, a renowned medical device company and provider of continuous glucose monitoring (CGM) systems, has a market capitalization of $51.61 billion. It projects 33.1% 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 32.81%.
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Let’s delve deeper.
Strong Product Demand: We are upbeat about DexCom's continued strength in its 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 reflect strong demand since their launch late last year.
Moreover, the expansion of coverage for CGM systems during the quarter supported growth. This trend is likely to continue in 2024 as well. The availability of new sensors like G6 and G7 in new international markets is also boosting revenue growth. DXCM launched its latest sensor, G7, in more than 15 countries in 2023. Moreover, DexCom is focusing on connecting its CGM sensors with automated insulin delivery systems worldwide. This may boost the sensors’ demand going forward.
Additionally, the glucose monitoring market presents significant commercial opportunities for the company. DexCom’s prospects in alternative markets such as non-intensive diabetes management, hospital, gestational, pre-diabetes and obesity are likely to provide it with a competitive edge in the MedTech space.
New Product Launch: In March, DexCom received FDA approval for its new glucose sensor, Stelo, designed specifically for people with type II diabetes who do not use insulin. The company expects to launch the sensor in the U.S. market during the summer of 2024. This is the first sensor from DXCM targeting type II diabetes and is likely to be a key growth driver for the company in 2024.
In February, DexCom launched its latest CGM system, Dexcom ONE+, which is simple to use and lowers the entry hurdle to diabetic technology. It aims to deliver a highly effective CGM experience to people treating their type 1 or type 2 diabetes with insulin.
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 its launch late last year.
In 2022, DexCom 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.
The company ended the fourth 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 Q4 Results: DXCM’s strong fourth-quarter 2023 revenues buoy optimism. The company achieved the largest expansion of coverage for its sensors in 2023. The expanded coverage made its sensors more accessible to patients, thereby driving revenues. Dexcom expects total revenues in the band of $4.15-$4.35 billion for 2024, implying organic growth of 16-21% year over year.
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 290 basis points year over year during the fourth quarter to 63.5%, reflecting the rising cost of sales. It expects an adjusted gross margin of 63-64% 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 2024. In the past 60 days, the Zacks Consensus Estimate for earnings has increased from $1.74 per share to $1.76 for 2024.
The consensus mark for the company’s first-quarter 2024 revenues is pegged at $911.2 million, indicating a 22.9% improvement from the year-ago quarter’s reported number. The same for earnings is pinned at 27 cents per share, implying growth of 58.8% 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 DaVita Inc. DVA, Biodesix BDSX and Cencora COR.
DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 12.1%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 35.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DaVita’s shares have risen 23.8% compared with the industry’s 2.8% growth year to date.
Biodesix, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 29% in 2024. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 13.96%.
BDSX’s shares have lost 32.1% year to date against the industry’s 1.4% growth.
Cencora, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 9.8%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 6.7%.
Cencora’s shares have risen 16% year to date compared with the industry’s 1.4% growth.
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