Dexcom Earnings: Rollout of G7 Fuels Strong Growth, With More To Come

No-moat Dexcom DXCM posted another quarter of impressive results in the second quarter. However, minor adjustments to our model didn’t materially shift our $92 fair value estimate. While we weren’t particularly surprised by quarterly revenue growth of 26% in constant currency, we were pleased to see Dexcom improve its operating margin to the tune of 360 basis points. Though the firm crossed into profitability in 2019, it is still ramping this up, which we project to reach 22% operating margin in 2027. This quarter was a big step in the right direction, and we anticipate further improvements through 2024 as the manufacturing of G7 reaches scale.

It’s been roughly seven months since the G7 continuous glucose monitor, or CGM, was approved by the U.S. Food and Drug Administration, and it appears to be making inroads in the U.S. with sales up 19% in the first half of 2023. However, considering the G7 hasn’t yet been integrated with the insulin pumps from Tandem and Insulet, we think there’s more pent-up demand that has yet to be released. Once integration is achieved, U.S. revenue growth is likely to accelerate into 2024, driven by Type 1 diabetes patients on those pumps.

Separately, Dexcom has been assertively pursuing the development of additional markets for its CGMs. As the clinical data accumulates to support the benefit of CGM use in Type 2 diabetes patients who are not using insulin, indications and reimbursement should also creep to enlarge the potential patient pool. The G7 is already indicated for patients at least two years old with any type of diabetes, including gestational diabetes. Approximately 8% of live births in the U.S. now involve gestational diabetes, which translates into just under 300,000 people annually. We wouldn’t be surprised to see CGMs become the standard of care for these patients, in addition to patients with Type 1 and 2 diabetes.