We reiterate our Neutral recommendation on
Its second-quarter 2012 loss per share of 21 cents exceeded the
Zacks Consensus Estimate of a loss of 20 cents per share. Net loss
widened 99.4% year over year to $14.7 million, despite healthy
San Diego, California-based DexCom is a medical device company
focused on the design, development and commercialization of
continuous glucose monitoring systems for ambulatory use by people
with diabetes and by healthcare providers for the treatment of
diabetic and non-diabetic patients.
DexCom is well placed in the industry that it serves. The
comparison of the exponential rise of diabetes in recent years to
the fraction of population using continuous glucose monitors
implies that the market for the company's offerings remains
Further, the company can gain significant operating leverage
from expansion of its footprint into new geographies as statistics
suggest that the market in developing countries present a sizeable
However, we note that competition in the glucose monitoring
market is intense and DexCom faces stiff challenges from much
larger players such as
Johnson & Johnson
). We believe that the company's move to buy healthcare IT company
SweetSpot Diabetes may allow it to compete more effectively with
Medtronic through better data management systems.
DexCom is still in its early stage of operations and has
incurred losses since inception in 1999. It is exposed to an
increasingly strict regulatory environment. Also worth mentioning
in this context is the high reimbursement risk which the company
faces in the domestic market.
We still believe that DexCom is poised to gain a major share of
the glucose monitoring market, driven by sustained product
development initiatives, collaborations and increased need for
continuous glucose monitoring. Our Neutral recommendation on the
stock is backed by a short-term Zacks #3 Rank (Hold).
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