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Why DexCom (DXCM) Might be Well Poised for a Surge

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Investors might want to bet on DexCom (DXCM - Free Report) , as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The upward trend in estimate revisions for this medical device company reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For DexCom, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The company is expected to earn $0.09 per share for the current quarter, which represents a year-over-year change of +280%.

Over the last 30 days, the Zacks Consensus Estimate for DexCom has increased 9.53% because four estimates have moved higher while three have gone lower.

Current-Year Estimate Revisions

The company is expected to earn $1.99 per share for the full year, which represents a change of +8.15% from the prior-year number.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, six estimates have moved up for DexCom versus two negative revisions. This has pushed the consensus estimate 15.37% higher.

Favorable Zacks Rank

The promising estimate revisions have helped DexCom earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on DexCom because of its solid estimate revisions, as evident from the stock's 27.8% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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