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Bull of the Day: DexCom (DXCM)

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DexCom (DXCM - Free Report) is a $13 billion med-tech developer of continuous glucose monitoring (CGM) systems for people with diabetes. DXCM became a Zacks #2 Rank after a strong beat and raise quarter reported on 2/21.
DexCom delivered Q4 adjusted EPS of 54 cents vs the consensus of 17-c for a giant 217% beat. And Q4 revenues of $338 million beat the consensus view of $307.5 million by a healthy 10%. Much of the good news was baked in as the company had preannounced the coming strong results. But they even beat those numbers.
As you probably know, diabetes patients must stick their finger several times per day to monitor their blood sugar. Dexcom is changing that with a device called a continuous glucose monitor (CGM). These devices track glucose levels throughout the day rather than rely on bloody finger sticks and test strips.
And this, as you might guess, gives patients and their care providers more accurate data to measure and understand daily ebbs and flows in blood glucose levels.
In February, DexCom received Health Canada approval for its G6 CGM System. Dexcom announced that the Health Canada thumbs up for its next generation CGM system was for people with diabetes ages two years and up. It was previously introduced into the U.S, U.K., Ireland, and several other European countries and has seen strong sales so the G6 commercial launch in Canada, planned for late 2019, is much anticipated.
Analysts Hail the Innovation and the Growth
Here were analyst reactions to DexCom's Feb 21 report after the company offered 2019 revenue guidance of $1.175 billion to $1.225 billion, representing 19% growth over last year, and gross profit margin of approximately 65%...
Cowen & Co: Analyst Doug Schenkel raised his price target on DexCom to $175 from $150 following its "blowout" Q4 results. The analyst believes its guidance leaves plenty of room for top and bottom line upside, though he admits a new competitor product could provide headline risk. He views the shares as a long-term core holding. Schenkel reiterated his Outperform rating on DexCom shares.
Canaccord Genuity: Analyst Kyle Rose raised his price target on DexCom to $160 from $140 following its strong Q4 results. The analyst expects its exceptional growth to continue, supported by strong growth in sensor volumes, continued worldwide adoption of CGM, and the ongoing launch of G6, which is just now moving into additional territories and Medicare. Rose views DexCom as one of the best pure growth assets across the med-tech space.
Piper Jaffray: Analyst JP McKim told investors in a research note that he believes DexCom is positioning itself for the next $1B in sales to be "solid, profitable growth." The restructuring allows the company to scale quicker and at a lower cost over the longer term, McKim says. He reiterated an Overweight rating on DexCom with a $165 price target.
Oppenheimer analysts raised their 2019 sales estimate to $1.22 billion from $1.13 billion, with US growth in the mid-teens and elsewhere up ~30%. Their EPS projection rose to $0.59 from $0.25 on solid operating leverage and their price target goes to $167 from $150.
Leerink Swann analysts explained why DXCM could continue to commance a premium valuation. Their $170 price target applies a ~9.5X price-to-sales multiple to their $1.512 billion 2020 revenue estimate. DXCM shares currently trade at about 10X their $1.22 bilion 2019 sales estimate, which is a premium to comparable small-cap MedTech companies like Inogen (INGN - Free Report) at about 5X.
The Leerink analysts forecast that DXCM can continue to deliver estimate upside and sustain the EV/sales multiple at current levels. Ultimately, they believe DXCM shares warrant at least a modest premium to other mid-cap MedTech stocks given: (1) A massive and highly underpenetrated TAM (total addressable market) of about $6 billion per their estimate; (2) consistent upside potential; and (3) a top-tier growth outlook longer term. 
Based on these analyst moves, consensus DexCom EPS for 2019 moved 70% higher in the past month from $0.27 to $0.46, representing 53% annual growth. And 2020 profit projections jumped 47% from $0.64 to $0.94. 
Growing Pipeline Attracts Giant Partners
Investors Business Daily had a good article on DexCom in early February, before earnings, by Allison Gatlin where she highlighted company innovation... 
Analysts Bullish On Pipeline in Changing Diabetes Landscape
Dexcom offers a slew of continuous glucose monitors. Its newest is the G6. But analysts are bullish on its pipeline. The medical device company is teamed up with pharma giants including Eli Lilly (LLY - Free Report) and Novo Nordisk (NVO - Free Report) in diabetes treatment.
"We remain excited about the pipeline," Piper Jaffray analyst J.P. McKim said in a January note. In about two years, Dexcom and Verily Life Sciences, a subsidiary of Alphabet (GOOGL - Free Report) , expect to launch the G7. They hope the device is thinner, less costly and has a wear time of 14-15 days.
"Clearly, the cadence of products and innovation will remain robust as well," McKim said.
(end of IBD excerpt)
Despite the rich valuation of DexCom, healthcare investors who want exposure to diabetes innovation should be looking at dips in DXCM. And one may be coming soon as a short-selling firm just targeted the company today as I write on 3/21. Be sure to follow my alerts to stay up to date on that story as I learn more.
Discloure: I own DXCM and INGN shares for the Zacks Healthcare Innovators portfolio.
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