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How DexCom Trounced Wall Street Estimates in Q3

DexCom (NASDAQ: DXCM) rebounded quickly from the coronavirus-fueled market meltdown earlier this year. But while its shares are up more than 70% year to date, the stock has mostly been in a holding pattern in recent months.

The diabetes care technology provider announced its third-quarter results after the market closed on Tuesday. Were those results enough to provide a nice bump for the stock? Here are the highlights from DexCom's Q3 update.

Person holding a smartphone with glucose data displayed.

Image source: Getty Images.

By the numbers

DexCom reported Q3 revenue of $500.9 million, a 26% increase from the $396.3 million reported in the same quarter of the previous year. This result easily topped analysts' average revenue estimate of $476.75 million.

The company announced net income in the third quarter of $72.2 million, or $0.73 per share, based on generally accepted accounting principles (GAAP). This was a big jump from DexCom's GAAP earnings in the prior-year period of $45.8 million, or $0.50 per share.

DexCom recorded adjusted net income in Q3 of $93.6 million, or $0.94 per share, compared to $60.4 million, or $0.65 per share, in the year-ago period. This handily beat the consensus Wall Street earnings estimate of $0.64 per share.

Behind the numbers

Earlier this month, Wells Fargo analyst Larry Biegelsen downgraded DexCom and slashed his one-year price target on the stock because he was concerned about increased competition for the company's G6 continuous glucose monitoring (CGM) system. Although the G6 certainly does have stiffer competition from Abbott Labs' FreeStyle Libre 2, DexCom's Q3 results showed that its CGM device continues to attract plenty of customers.

DexCom reported strong volume growth for its G6 device driven by new patient additions. It's not all that surprising that the CGM market is big enough to support multiple winners.

However, year-over-year sales growth is slowing for DexCom. That's true both in the U.S. and in international markets. On the other hand, hardware revenue growth appears to be accelerating. DexCom reported 20% year-over-year hardware revenue growth in Q3 compared to 9% growth in the prior-year period.

Looking ahead

DexCom again raised its full-year 2020 guidance. The company now anticipates revenue of $1.9 billion in full-year 2020, up from its previous outlook of $1.85 billion.

The healthcare stock could enjoy a boost if a new partnership pays off with higher sales. After the end of the third quarter, DexCom and Eli Lilly announced a program for U.S. healthcare providers that teams DexCom's G6 devices with Lilly's new rapid-acting mealtime insulin Lyumjev.

Investors should also keep their eyes on what DexCom does with its growing cash stockpile. The company reported cash and marketable securities totaling $2.6 billion at the end of the third quarter. DexCom noted that this strong cash position provides a lot of flexibility as it "continues to expand production capacity and explore new market opportunities."

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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