DexCom, Inc. (NASDAQ:DXCM) is currently one of the best-performing stocks in the Medical Instruments industry. The large and growing diabetes market, strong product portfolio, collaborative agreements with several companies and focus on international markets are key drivers of the stock at the moment.
DexCom sports a Zacks Rank #1 (Strong Buy).
Impressive Share Price Performance
A glimpse at the company's price trend reveals that DexCom has outperformed its industry in a year’s time. The stock has soared 123.8%, significantly outperforming the industry’s 8% growth and the S&P 500 index's 1.1% gain.
Let us take a quick look at three important factors that make DexCom a solid pick for now.
Factors at Play
Deal With Verily
In a bid to fortify its foothold in the Type 2 diabetes space, DexCom recently announced a new amendment to its license deal with Verily— the life sciences unit of Alphabet (NASDAQ:GOOGL) . With this deal, DexCom is expected to deliver its next generation CGM (Continuous Glucose Monitoring) platform by the end of 2020.
DexCom will make an initial payment of $250 million in stock. Moreover, additional payments of up to $280 million may become due and payable through product launch and revenue milestones. DexCom is likely to pay $275 million of the milestones in stock as well (read more: DexCom Amends Deal With Verily to Launch Advanced CGM by 2020).
Solid Q3 Results
DexCom reported adjusted earnings of 17 cents per share in the third quarter of 2018, which surpassed the Zacks Consensus Estimate of a loss of 12 cents. Total revenues rallied 44.5% to $266.7 million on a year-over-year basis and also surpassed the Zacks Consensus Estimate of $242 million.
Buoyed by solid third-quarter results, DexCom raised the 2018 guidance. The company expects revenues of $975 million, up from $925 million anticipated earlier. Reported operating expenses, excluding investments in non-intensive programs, are expected to increase 18% from the 2017 level. The projection is significantly higher than the previous forecast of 14%.
Gross profit margin is projected at 64%, in line with the prior guidance.
Strong International Foothold
DexCom continues to focus on international markets, primarily on Germany. It is eyeing the sizeable markets of India, China and Japan as well. In the third quarter of 2018, DexCom’s international revenues skyrocketed 93% year over year to $64.3 million, with all major markets nearly doubling from the prior-year quarter. Notably, the company received approvals in Japan and Korea.
Management sees robust growth opportunities in some of the European Union countries as well.
Which Way Are Estimates Treading?
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 14 cents, reflecting a year-over-year increase of 40%. The same for revenues stands at $283.1 million, indicating 28.1% decline year over year.
For the full year, the Zacks Consensus Estimate is pegged at a loss of 12 cents. The same for revenues stands at $977.4 million.
DexCom, Inc. Price, Consensus and EPS Surprise
Bottom Line
DexCom’s solid foothold in international markets is commendable. Furthermore, the company exhibits a VGM Score of B. Markedly, the VGM Score (V stands for Value, G for Growth and M for Momentum) essentially highlights critical factors in a stock that have the potential to drive its price higher in the near term.
Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy) are better picks.
Other Stocks to Consider
Some other top-ranked stocks in the broader medical space are Abiomed, Inc. (NASDAQ:ABMD) and Masimo Corporation (NASDAQ:MASI) .
Abiomed has a long-term expected earnings growth rate of 34.3%. The stock carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Masimo’s long-term earnings growth rate is projected at 14.6%. The stock has a Zacks Rank #2.
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