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Here's Why You Should Retain Insulet (PODD) Stock for Now

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Insulet Corporation (PODD - Free Report) is well poised for growth in the coming quarters, backed by Omnipod’s U.S. and international expansion. The company ended the second quarter of 2021 with better-than-expected revenues. A good solvency position is another advantage. The company’s plan to launch the Omnipod 5 buoys optimism. However, macroeconomic woes and stiff competition do not bode well for the stock.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 34.2% against 15.3% growth of the industry and a 37.3% rise of the S&P 500.

The renowned developer, manufacturer and marketer of insulin delivery system has a market capitalization of $20.02 billion.

The company projects 620% growth for 2022 and expects to maintain its strong segmental performance. It surpassed estimates in one of the trailing four quarters and missed in three, the average negative surprise being 66.7%.

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Let’s delve deeper.

Factors At Play

Omnipod’s Continued Market Access Expansion: Insulet is consistently gaining from the full commercial launch of the Omnipod DASH system in the United States in 2019, raising optimism. During the second quarter of 2021, the company registered strong U.S. Omnipod revenue growth led by an expanding customer base, Omnipod DASH adoption and ongoing mix benefit as the company shifts volume into the pharmacy channel. Omnipod DASH, which continues to drive growth, drove almost 80% of the U.S. new customer addition in the second quarter of 2021. We are upbeat about the launch of Omnipod DASH system in Canada in January 2021. Further, the company’s plans to launch Omnipod DASH in Australia in 2021, thereby building on its expansion into Turkey during early 2021 and across Europe and the Middle East in 2020, raises hopes.

Strong Solvency: Insulet exited the second quarter of 2021 with cash and cash equivalents, and short-term investments of $872.1 million. At the end of the reported quarter, total debt was $1.26 billion. Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the company's short-term-payable debt of $21 million is significantly lower than the cash and cash equivalents, and short-term investments. This is good news for the company's solvency position, since at least during the year of economic downturn, the company is holding enough cash for short-term debt repayment.

Q2 Upsides:  We are upbeat about Insulet’s better-than-expected revenues in the second quarter of 2021. The solid uptake of the Omnipod system, both in the United States and international markets, drove the top line. The company’s second-quarter U.S. Omnipod revenues increased robustly year over year, meeting the low end of the guidance on strength in total Omnipod growth. Insulet’s plan to introduce the Omnipod 5 in the second half of 2021 looks encouraging as well. The full-year revenue guidance with strong growth projection over 2020 buoys optimism.

Downsides

Sole Reliance on Omnipod System: Insulet’s financial performance continues to be largely dependent on the performance of its lead product, the Omnipod System. Per the company, any adverse change in the market acceptance of the product or worsening of the factors that negatively influence sales will have a significant impact on the company’s financials.

Economic Uncertainty Impedes Growth: Weaker global economic conditions may reduce demand for Insulet’s products and intensify competition. A number of countries in Western Europe are facing a liquidity crunch. Insulet is also exposed to the risk of a reduction in healthcare spending in the United States, Canada and Europe due to an economic slump. Unstable macroeconomic conditions due to the coronavirus outbreak is concerning as well.

Tough Competitive Pressure: Insulet operates in a highly competitive environment, dominated by firms ranging from large multinational corporations to start-ups. Also, the competitive and regulatory conditions in the markets where the company operates limit Insulet’s ability to switch to strategies like price increases and other drivers of cost. Insulet’s Omnipod System primarily competes with MiniMed, a division of Medtronic PLC (MDT - Free Report) .

Estimate Trend

Insulet has been witnessing a negative estimate revision trend for 2021. Over the past 30 days, the Zacks Consensus Estimate for its earnings per share has moved down by 16.7% to 20 cents.

The Zacks Consensus Estimate for Insulet’s third-quarter 2021 revenues is pegged at $270.9 million, suggesting a 15.8% rise from the year-ago reported number.

Key Picks

Two better-ranked stocks from the Medical-Products include VAREX IMAGING (VREX - Free Report) and Envista Holdings Corporation (NVST - Free Report) , each carrying a Zacks Rank #2 (Buy).

VAREX has a long-term earnings growth rate of 5%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has a long-term earnings growth rate of 27.4%.