Analyst Note| Debbie S. Wang |
No-moat Dexcom’s strong second-quarter performance is a testament to the larger secular trend of diabetes patients embracing continuous glucose monitors thanks to a spurt of meaningful innovation. We’ve raised our fair value estimate to $207 per share, up from $185, after adjusting our estimates for sensor growth upwards for 2020. Nonetheless, shares remain overvalued, from our perspective. We’d originally projected 15% topline growth for the full year on the assumption that the pandemic would significantly disrupt new patients from starting on the G6 CGM. We now think we substantially undershot, based on how quickly Dexcom saw new patients return through the second quarter, and have increased our projection for 28% revenue growth this year. Dexcom saw 20% to 25% declines in new patient starts in late March and during April when shelter-in-place orders descended. However, this pipeline of new patients had recovered fairly well by end of June. Considering the on-going flareups of COVID-19 in different areas, we now expect positive growth in new patients, albeit at lower levels than usually seen as the pandemic continues to damp normal consumer activity.