DXCM

Why DexCom Stock Rallied on Monday

Shares of DexCom (NASDAQ: DXCM) surged higher on Monday, gaining as much as 5.3%. As of 3:04 p.m. ET, the stock was still up 3.6%.

The catalyst that sent the medical device maker higher was bullish commentary by one Wall Street analyst.

Here's why DexCom earned an outperform rating

Leerink analysts initiated coverage of DexCom with an outperform rating, while simultaneously assigning a $110 price target, according to The Fly. This would represent potential gains of 44% compared to the stock's closing price on Friday.

The firm cited the recent weakness in the shares driven by "perceived headwinds" from Novo Nordisk's Ozempic and Eli Lilly's Mounjaro, glucagon-like peptide-1 (GLP-1) agonist medications. These medications, which have been widely prescribed for diabetes, have in some cases produced significant weight loss.

Some investors have, in turn, soured on DexCom's continuous glucose monitoring (CGM) solutions. The concern is that if these drugs produce such dramatic results, that might put an end to the need for CGM and other related treatments.

Leerink's research suggests these fears are overblown and these drugs will have a "limited impact" on DexCom. The analysts further believe DexCom will continue to maintain its strong double-digit growth rate.

Is DexCom stock a buy?

The evidence shows that while the weight loss achieved by those in this class of drugs can be significant, it isn't without potential problems. Patients have reported a wide variety of side effects, including persistent vomiting, blocked intestines, and even stomach paralysis, which is dampening the initial enthusiasm for these medications.

Furthermore, DexCom pointed out that among patients taking GLP-1 medications, CGM use doubles, which seems to support the theory that these fears are overblown.

This is just one of the many reasons that DexCom stock is a buy.

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Danny Vena has no position in any of the stocks mentioned. The Motley Fool recommends DexCom and Novo Nordisk. 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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