The $44 Billion Name You Need to be Monitoring

There’s an epidemic underway.

And it’s one shortening the lifespans of tens of millions of Americans.

In the U.S., 11.6% of the population has diabetes.

And every year, 1.2 million new people in the country are diagnosed as diabetic.

It’s one of the most significant health crises facing the U.S.

But this isn’t merely American made… this is a problem spreading across the globe.

Worldwide, more than 537 million people have diabetes.

And by 2045 it’s projected 783 million people will be diagnosed as diabetic.

Fortunately, companies are working diligently to help patients battle this health crisis. And some of the biggest breakthroughs in recent years on this front have been portable insulin pumps as well as continuous glucose monitors (CMG).

Well, tonight, one of the largest players in this sector is set to report earnings… and for savvy investors, the trend here looks attractive both in the short- and long term.

A Second Quarter Second Chance

Dexcom (DXCM) sells CMG systems across the world.

The company has partnerships with more than 80 notable names in the healthcare industry, such as Tandem Diabetes (TNDM), Eli Lily (LLY) and Novo Nordisk (NVO).

With the rise in diabetes, Dexcom’s business is seeing healthy growth. In 2023, revenue increased 27% to $1.03 billion.

And in March, shares hit their highest level since 2021.

But they’ve cratered 21% since then.

So, what’s the deal?

In the first quarter, Dexcom reported a 24% increase in revenue to $921 million. At the same time, earnings per share (EPS) came in at $0.32, almost double year-over-year, and above Wall Street expectations.

But the good news didn’t stop there.

The company also received clearance by the Food & Drug Administration (FDA) for Stelo, a new CMG system for patients with Type-2 diabetes. It is the first glucose biosensor greenlit for use in the U.S. that doesn’t require a prescription. And there are more than 25 million Americans with Type-2 diabetes that haven’t progressed to insulin therapy. So, this is a viable market to tap.

Meanwhile, its Dexcom ONE+ launched in eight European countries.

And to top it off, Dexcom raised full-year guidance to $4.265 billion.

Yet, shares tumbled 9.9% on the report.

Many analysts and investors were blindsided by the move lower.

The reality is, though, they’re overlooking a long-term trend. You see, Dexcom shares have only risen on first quarter earnings five times since 2009. That translates to a mere 31% success rate! And shares have dropped on first quarter earnings for four consecutive years.

It’s the CMG maker’s worst-received quarter of the year by a considerable margin. And it all has to do with forward guidance never being enough.

Now, Dexcom will report second quarter earnings tonight, after the closing bell.

And the good news is that the reaction here is a complete above-face from the first quarter. In large part due to lowered expectations

Wall Street is looking for the company to report a 23.2% increase in revenue to $1.04 billion with earnings of $0.39 per share.

Well, since 2009, Dexcom shares have only fallen on second quarter earnings four times…

That equates to only a 26.7% probability of a drop.

And during that time, our average one-day gain of shares of second quarter earnings is 5.3%. This is the company’s best-received earnings report of the year.

The options market is currently forecasting a +/- 7.5% move. That would take Dexcom shares as high as $118 or as low as $102.

Our VertEA trend is to bet on a move higher.

A Safe Haven in Tech

It’s been a rough couple of weeks for tech stocks.

This morning, the Nasdaq was more than 8.5% below its all-time high set a mere 14 days ago on July 11. And the Invesco QQQ ETF (QQQ) is on pace to do something it hasn’t done since 2007… end July with a monthly loss.  

Though, there is still time for the Nasdaq 100 to end the month higher… especially with more of the “Magnificent 7” set to report.

But in a month marred by tech stock meltdowns, Dexcom shares have remained relatively stable. They’re down a tad more than 1% in July. And if its second quarter earnings trend holds true, we should see a boost for the CMG maker this evening. Meanwhile, the longer-term trend on diabetes provides an ongoing upside for its business.

Monitoring for green with Dexcom,

Matthew

P.S. Earnings season is here! I will cover upcoming big names like Apple (AAPL), Meta Platforms (META) and Microsoft (MSFT) next week. But if there are companies you’d like me to analyze this earnings season, drop their ticker in the comments and I’ll try to write up a VertEA analysis to share!