DexCom, Inc. (DXCM Quick QuoteDXCM - Free Report) is well-poised for growth in the coming quarters, backed by its strong product portfolio. A robust second-quarter 2022 performance, along with a series of favorable coverage decisions, is expected to contribute further. However, stiff competition and reimbursement risks persist.

Over the past year, this Zacks Rank #3 (Hold) stock has lost 35.2% compared with 30.3% fall of the industry and 11.7% decline of the S&P 500.

The renowned medical devices company and provider of continuous glucose monitoring (CGM) systems has a market capitalization of $32.92 billion. The company projects 31.4% growth for the next five years and expects to maintain its strong performance. DexCom’s earnings surpassed the Zacks Consensus Estimates in one of the trailing four quarters, missed the same in two and broke even in one, delivering an earnings surprise of -3.4%, on average.

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Let’s delve deeper.

Strong Product Portfolio: We are upbeat about DexCom's continued strength in its CGM products. The company, in August, announced the availability of the easy-to-use Dexcom ONE real-time CGM (rt-CGM) System on prescription via the NHS England, Wales, Scotland and Northern Ireland drug tariff to everyone with type 1 or type 2 diabetes using insulin.

In June, DexCom announced its plans to showcase its expanded global portfolio of rt-CGM systems at the Scientific Sessions of the American Diabetes Association conference.

Positive Coverages: DexCom's products have been receiving increasing coverage over the past few months, raising our optimism. The company, in June, announced that people with type 1 and type 2 diabetes aged two years and above on multiple daily injections of insulin (three or more) or who use an insulin pump may now be eligible for public coverage of the Dexcom G6 CGM System via Prince Edward Island’s Diabetes Glucose Sensor Program.

In March, DexCom announced that effective Mar 14, 2022, the Ontario government will provide coverage for the Dexcom G6 CGM System through Ontario’s Assistive Devices Program for people with type 1 diabetes living in the province who are above the age of 2 years and meet coverage criteria.

Strong Q2 Results: DexCom’s solid second-quarter 2022 revenues buoy optimism. Rising volumes across all channels and strong new customer additions contributed to the upside. Impressive contributions from the Sensor segment, and domestic and international revenue growth were key catalysts. DexCom also received CE Mark for an updated sensor algorithm, making the latest G7 sensor technology available to international markets.

Downsides

Reimbursement Risk: Reimbursement risk is somewhat high due to the efforts to control healthcare expenses. The company has noted that most Type 1 patients (above 65) pay 100% of their CGM costs out of their own pockets. Unless payers (both government and private insurers) provide sufficient coverage and reimbursement, commercial success for DexCom will be limited, in our view.

Stiff Competition: The market for blood glucose monitoring devices is highly competitive, subject to rapid change and significantly affected by new product introductions. DexCom’s competitors manufacture and market products for the single-point finger stick device market, and collectively account for substantially all of the worldwide sales of self-monitored glucose testing systems, currently.

Estimate Trend

DexCom is witnessing a negative estimate revision trend for 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 3.7% south to 79 cents.

The Zacks Consensus Estimate for the company’s third-quarter 2022 revenues is pegged at $751.3 million, suggesting a 15.5% improvement from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN Quick QuoteAMN - Free Report) , Patterson Companies, Inc. (PDCO Quick QuotePDCO - Free Report) and McKesson Corporation (MCK Quick QuoteMCK - Free Report) .

AMN Healthcare, flaunting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 15.7%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has lost 5.9% compared with the industry’s 34.9% fall in the past year.

Patterson Companies, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 7.9%. PDCO’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%.

Patterson Companies has lost 5.1% compared with the industry’s 12.4% fall over the past year.

McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 9.9%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average beat being 13%.

McKesson has gained 77.4% against the industry’s 12.4% fall over the past year.