DexCom Beats Views, Raises Guidance, But Shares Are Down

DexCom NASDAQ: DXCM, which makes glucose monitoring systems, is still slogging through a correction that began in August. 

Does that mean the stock is best ignored for now, or does it deserve a place on a watch list, so you’re ready when a new uptrend gets underway?

To answer that question, let’s start with the earnings and revenue history. 

Revenue grew between 23% and 49% during the past eight quarters. Meanwhile, the company has remained profitable, although the pace of earnings declined. 

DexCom offers a good lesson in how a stock with winning characteristics can turn lower, often for a reason that’s not easy to discern. However, good fundamentals and growing earnings will eventually lure investors back.

So what’s going on at the moment? 

When DexCom reported its first quarter, earnings came in at $0.33 per share, topping estimates of $0.31 a share, but declining 25% from the year-ago quarter. 

Revenue was $505 million, a year-over-year increase of 25%, and beating Wall Street expectations of $482.67 million. 

The company also raised full-year guidance to a range between $2.26 and $2.36 billion, up from previous guidance of $2.21 to $2.31 billion.

In the earnings call, chief financial officer Jereme Sylvain said $25 million of the guidance increase could be attributed to “currency tailwinds.” He noted that the rest was “related to volume growth expected both in the first quarter and on the balance of the year.” He said new patient additions were slightly ahead of expectations. 

Shares of DexCom, which were already in a correction, plunged 8.44% following the earnings report. 

Investor Concerns 

That decline in earnings was expected. The updated revenue looks promising. So why would that send shares plummeting? 

There are a few possible reasons. First, analysts are concerned about competition from some big players. 

DexCom’s glucose monitoring systems are based on stick-on, wearable patches that connect to a phone app. It replaces the old-fashioned method of sticking one’s finger to draw blood. Already, Abbott Laboratories NYSE: ABT is a rival. According to reports, the likes of Apple, Samsung, and Fitbit are working on wearable health monitoring gear that would include glucose tracking. 

Sure, it would be tough for those potential new entrants to get the necessary FDA approval for their devices, but it’s certainly not impossible. However, DexCom and Abbott are known and trusted for the accuracy of their devices. 

Another concern is a price cut in Europe, which was addressed in the company’s earnings call, in response to an analyst’s question. 

Sylvain said the company’s guidance “contemplates pricing impacts in our international markets.” That means European price cuts are already baked into the company’s forecasts. 

Finally, investors and analysts are wondering about the release of the company’s next-generation system, the G7. The company expects to deliver preliminary data on G7 performance at a virtual medical conference this week. 

In its earnings release, DexCom said it expects to launch the G7 system in the second half of this year. 

Choppy Consolidation

The prolonged pullback has resulted in a one-year decline of 3.44%, and a three-month decline of 7.82%. 

The current consolidation has been choppy, although the up/down volume ratio is 1.2, meaning that upside volume has been higher than downside volume over the past 50 sessions. 

Though the current diagnosis seems mixed, analysts continue to be optimistic about the company and the stock. 

Since the earnings report, Raymond James, Citigroup, Cannacord Genuity, Barclays and Wells Fargo either boosted their price targets or initiated coverage with a “buy” rating. Analysts’ consensus estimate is a buy, with a price target of $461.19.

That represents a 26% upside over Tuesday’s closing price of $370.99.  

This stock is not buyable at the moment, as the correction is still taking shape. However, it’s worth adding to a long-term watch list, as the fundamentals, as well as analyst support, seem likely to drive an eventual move higher.