Company Reports

Tandem Diabetes reported fourth-quarter and full-year results that slightly exceeded our revenue projections, but also exceeded our operating expense estimates. We're leaving our $32 fair value estimate unchanged since these factors offset each other. Though Tandem has yet to dig a moat, in our opinion, shares are substantially undervalued, in our view, especially considering the longer-term potential for insulin pumps to further penetrate the Type 1 diabetes market and introduce this therapy to the Type 2 patient pool. Nonetheless, the negative impact of competitive launches of Omnipod 5 at Insulet and the 780g at Medtronic weighed on Tandem in 2024 and underscored a lack of structural factors that could insulate the firm's business. For this reason, we're not yet inclined to award Tandem a moat. We would need to see the company consistently and successfully commercialize new technology that commands a pricing premium.

Coming off the heels of a weak second quarter, Tandem's third quarter was more of the same. Though we made slight adjustments to our near-term expectations, this wasn’t enough to affect our $32 fair value estimate. While Tandem has recently made progress in containing operating expenses, the firm still has some years to go before returning to profitability. Similarly, projected returns on invested capital are likely to trail the weighted cost of capital through 2027, which keeps us from awarding Tandem any sort of economic moat at this point.

Though no-moat Tandem’s second-quarter results provided slight sequential improvement, top-line growth remains under pressure from competitive forces as well as patient adoption patterns ahead of new product launches. We’ve moderately lowered our near-term assumptions based on those trends, decreasing our fair value estimate by $2 to $32 per share. Unlike many medical device firms that raised their outlook after this quarter, Tandem abruptly and dramatically lowered the bottom end of its 2023 outlook to $785 million, down from $885 million, causing shares to swoon in after-market trading. We continue to expect Tandem to reach profitability in 2027, but are not yet confident enough in the firm’s ability to carve out competitive advantages that can be maintained over the longer haul.

Though Tandem Diabetes has made a splash in the insulin pump market as the latest entrant, the firm is still endeavoring to establish itself as a major competitor. On this rather lengthy path between the initial 2012 launch of its original t:slim pump and consistent positive earnings, Tandem still has a few years to go, from our perspective.

In initiating coverage on Tandem Diabetes, we peg its fair value estimate at $34 per share. Despite the solid commercial adoption of Tandem’s t:slim pump franchise, we think the firm has yet to dig an economic moat. The firm remains a distant third in the pump market where Medtronic has dominated through its ability to pioneer meaningful innovation and Insulet has been able to attract a greater proportion of new pump users through its disposable, tubeless format. Though Tandem has made a splash in the insulin pump market as the latest entrant, the firm is still endeavoring to establish itself as a major competitor and reach profitability. Also, on its rather lengthy path from the initial 2012 launch of its original t:slim pump to consistent positive earnings, Tandem still has a few years to go, from our perspective.

Though Tandem Diabetes has made a splash in the insulin pump market as the latest entrant, the firm is still endeavoring to establish itself as a major competitor. On this rather lengthy path between the initial 2012 launch of its original t:slim pump and consistent positive earnings, Tandem still has a few years to go, from our perspective.