Insulet Poised to See Strong Growth Thanks to Omnipod 5

Following narrow-moat Insulet’s PODD strong finish to 2022, we’ve modestly raised our fair value estimate to $234 per share, which reflects our expectation that this recent strength should be supported by the on-going the rollout of Omnipod 5 in the United States and impending launches in the United Kingdom and Germany.

Since 2012, the firm has made continual progress in bringing down its manufacturing costs (by more than 2,000 basis points) while increasing its top line. Insulet has also steadily chipped away at its operating costs since it launched its first Omnipod product, and we estimate operating margin should reach 19% by 2027, as the firm scales up and sales and marketing spending and research and development investment reach levels consistent with what is typically seen at other medical device companies. Nonetheless, we recognize 2022 gross margin has dipped significantly with the U.S. launch of Omnipod 5. However, we view this as a near-term event that should ease as Omnipod 5 manufacturing rises to scale and the processes are adjusted to enhance efficiency and reduce scrap.