Company Reports

No-moat Dexcom posted first-quarter results that are consistent with our full-year expectations, and we're leaving our $105 fair value estimate unchanged. Quarterly sales in the US and international markets rose 24% year over year—a fast start that led to management raising the bottom end of its revenue outlook. However, our projection for $4.34 billion of full-year sales remains at the high end of management's expectations. During the first quarter, Dexcom made further progress on key initiatives that we think can support the long-term growth of this firm.

Dexcom’s strong fourth-quarter performance wrapped up a solid year that slightly exceeded our expectations. However, our mild adjustments weren’t enough to shift our $105 fair value estimate. Organic quarterly revenue rose 26%, and Dexcom’s full-year 24% sales growth hit our estimate on the nose. The firm also eked out roughly 90 basis points of combined improvement in costs of goods sold and sales and marketing expenses. Our estimate for $3.4 billion in revenue for 2024 is on the high side of management’s outlook, which we think is supported by the recent expansion in Type 2 reimbursement and Dexcom’s continuous glucose monitor, or CGM, pipeline. With its business growing in size and scope, as well as heightened competition from Abbott, this year could be an inflection point with implications for Dexcom’s no-moat status. If the firm can successfully fend off competition, we may revisit our thinking on Dexcom’s moat.

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has intensified competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic.

No-moat Dexcom delivered a stellar quarter that reflected ongoing strength in its U.S. launch of G7 and displayed discipline on cost containment. At first blush, we expect to moderately raise our fair value estimate based on more optimistic longer-term adoption assumptions supported by the potential of new markets for Dexcom’s continuous glucose monitors. We also plan to give a minor boost to our full-year projections on this recent strength from G7 and strong performance in international markets. However, the effect of this near-term tinkering is likely to be small compared with our longer-term changes since our discounted cash flow model accounts for cash flows across multiple years.

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has intensified competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic.

No-moat Dexcom 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.

Dexcom delivered a strong start to 2023 with first-quarter organic revenue growth of 19% year over year. Considering the firm is on track with our full-year estimates and our projections remain bounded by management’s increased revenue outlook for 2023, we’re holding steady on our fair value estimate. Now that Dexcom has navigated heightened competition from Abbott and Medtronic, and has managed to stay in the black through the pandemic, we can see an argument for awarding Dexcom a narrow moat. We plan to revisit our thinking on this shortly.

Despite rival Abbott’s recent U.S. regulatory approval for integration of its Libre 2 and Libre 3 continuous glucose monitors, or CGM, with insulin pumps, we don’t anticipate changing our fair value estimate on Dexcom as our initial near-term adjustments weren’t enough to materially shift our valuation. On the whole, we think there is so much potential for the wider adoption of integrated pump and CGM technology that the expanding market will make it possible for both Dexcom and Abbott to see robust growth as category penetration increases among Type 1 and Type 2 diabetes patients. Nonetheless, this latest competitive development underscores the negative moat trend we’ve had on Dexcom, which reflects how both Abbott and Medtronic have raised the competitive heat in the CGM market where Dexcom used to dominate. Abbott’s regulatory approval has just ratcheted up the competitive pressure on Dexcom.

No-moat Dexcom delivered another quarter of solid results, and full-year performance hit our 2022 revenue estimate and gross margin on the nose. However, the absence of spending on collaborative research and development pushed earnings above our expectations, though not enough to shift our fair value estimate. We anticipate the U.S. regulatory approval of the next-generation G7 sensor should support 2023 top-line growth of 20%, which is at the top end of management’s outlook of 15% to 20%. The strength of international sales growth in 2022, buoyed by the earlier launch of G7 in European markets, gives us confidence that the upper end of 2023 guidance can be achieved.

DexCom reported impressive third-quarter results, and we’ve raised our fair value estimate to $92 per share, up from $81, to reflect our upbeat expectations of the next few years, as several factors converge to support strong double-digit revenue growth over our explicit forecast period. Nonetheless, shares remain significantly overvalued, from our perspective. We think DexCom has worked strategically to reinforce its leadership position in the continuous glucose monitor, or CGM, market, in the face of a serious competitive push by both Abbott and Medtronic. The firm’s able navigation of a changing competitive landscape over the last few years has given us more confidence that DexCom has carved out a competitive advantage that can be maintained, and we plan to revisit our thinking on its current no-moat status, especially considering that the company has crossed over into the black and has begun delivering return on invested capital in excess of its cost of capital.

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has intensified competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic.

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has intensified competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic.

No-moat DexCom’s second-quarter results held few surprises, and considering the firm is tracking with our full-year projections, we’re leaving our fair value estimate unchanged. After shares traded at nose-bleed levels for the last few years that we couldn’t justify with any reasonable (or even aggressive) estimates, DexCom shares have fallen to our intrinsic value, and we consider them fairly valued at this point. Now that DexCom has successfully engineered and begun commercializing its next-gen G7 continuous glucose monitor, we have greater confidence that this firm can continue innovating to remain a key competitor in the CGM market, despite considerable competitive pressure from Abbott and Medtronic. We think it’s time to revisit our thinking on DexCom’s negative moat trend and reassess the strength of the firm’s intangible assets.

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has intensified competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic.

DexCom posted another quarter of robust top-line growth that leaves the firm on track to meet our full-year expectations, and we’re standing behind our $315 fair value estimate. Importantly, DexCom’s next-generation continuous glucose monitor, the G7, recently received European regulatory clearance and we expect the accelerating launch in that geography should support our estimate for 19% revenue growth in 2022. Despite this progress, we have yet to give DexCom an economic moat, as the entire diabetes market has been a hotbed of innovation lately, which leaves open the door for competitors to potentially leapfrog Dexcom on the technology front. Nonetheless, we have been impressed by how DexCom has maintained its historical advantage on CGM accuracy borne out by best-in-class clinical data (though that gap is closing with Medtronic's and Abbott’s improved technology). In particular, we’re keeping a close eye on the launch of DexCom One—a simplified CGM—in the countries where it is making progress securing reimbursement. We view DexCom One as credible competition to Abbott’s very successful Libre franchise, as both are well suited for the large and underpenetrated type 2 diabetes market.

Dexcom posted full-year performance that matched up closely with our estimates, and we’re leaving our fair value estimate unchanged. Reported 2021 revenue growth of 27% hit our projection on the nose. However, gross margin clocked in slightly above our expectations, which was offset by R&D spending that slightly exceeded our projections. Our minor adjustments were not material enough to shift our fair value estimate. Though Dexcom has yet to sport an economic moat, we think there is potential as the firm continues to win over both type 1 and type 2 diabetes patients. Nonetheless, we continue to think that both Abbott and Medtronic are nipping at Dexcom’s heels with their own technological improvements.

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has introduced new competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic.

Dexcom posted another quarter of strong growth, seemingly unaffected by the COVID-19 ebbs and flows. We’ve raised our fair value estimate to $315 per share, up from $286, after inching up our projections to reflect expansion into some smaller European countries and Japan, as well as the ongoing shift toward direct distribution. Even with this boost to our intrinsic value, shares remain overvalued, from our perspective. Though Dexcom has yet to dig a moat, we’ve been impressed with the firm’s ability to consistently improve its technology. From the development of a simplified, more user-friendly continuous glucose monitor for certain countries new to continuous glucose monitors to the imminent European approval of G7, Dexcom has been able to build on its historical strength in accuracy and superior sensors. The firm has also displayed a nimbleness in reacting to competitive pressure from Abbott’s Freestyle Libre and Medtronic’s Guardian Connect CGM. Although the latter two firms have a ways to go to catch up to Dexcom on sensors and accuracy, Dexcom is clearly intent on pressing its advantage and solidifying its head start. As Dexcom works on integrating its CGM and software with various insulin pumps, diabetes management apps, and payer-sponsored disease management programs, we think there could be potential for switching costs and/or intangible assets to emerge and support a moat.

Dexcom posted another quarter of strong growth that slightly exceeded our expectations, and we’ve modestly raised our fair value estimate to $286 per share, up from $263, after dialing up our top-line projections as continuous glucose monitors further penetrate the larger type 2 diabetes patient population. While we haven’t yet awarded Dexcom a moat, we think it is appropriate to revisit this issue now that the company has firmly crossed into profitability. Moreover, Dexcom has been able to fend off competition from Abbott and Medtronic, both of which have been making improvements to their own technologies. Based on its ability to consistently innovate, Dexcom seems to have the makings of intangible assets that could contribute to a moat.

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has introduced new competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic.