On Sep 27, we reiterated our Neutral recommendation on Dexcom, Inc. (DXCM). The medical device company focuses on the development of continuous glucose monitoring systems but remains a loss-making entity despite soaring revenues. However, we are impressed by its better than expected results.
Why the Retention?
On Aug 7, DexCom reported a narrower loss of $1.1 million or 2 cents per share in the second quarter of 2013 compared with a loss of $14.7 million or 21 cents in the year-ago quarter, as well as the Zacks Consensus Estimate of a loss of 16 cents per share. The company’s total revenues soared 53.0% to $35.8 million, also exceeding the Zacks Consensus Estimate of $31.0 million.
Following the earnings release, the Zacks Consensus Estimate for 2013 inched down marginally by 1.9% to 52 cents per share, over the last 30 days. However, the estimate for 2014 remained unchanged at 20 cents over the same period. Currently, the stock has a Zacks Rank #3 (Hold).
Going forward, the new U.S. Food and Drug Administration (:FDA)-cleared G4 Platinum and international expansion are expected to accelerate growth. Increased awareness of the need for continuous glucose monitoring, new products and data supporting blood glucose monitoring should also help drive sales.
In addition, DexCom has also been active on the collaboration front in order to enhance the functions of existing products. Its business fundamentals rely on a recurring revenue base.
Nevertheless, competition in the glucose monitoring market continues to be fierce. Reimbursement risks and a stringent regulatory environment also pose potential challenges for DXCM in the near term.
Other Stocks to Consider
While we remain on the sidelines regarding DexCom, medical instruments stocks that warrant a look include Cynosure (CYNO), Given Imaging (GIVN) and Luminex Corporation (LMNX). All these stocks carry a Zacks Rank #2 (Buy).