Dexcom Prepares for G7 Launch in Europe; Raising Our FVE

Dexcom posted another quarter of strong growth, seemingly unaffected by the COVID-19 ebbs and flows. We’ve raised our fair value estimate to $315 per share, up from $286, after inching up our projections to reflect expansion into some smaller European countries and Japan, as well as the ongoing shift toward direct distribution. Even with this boost to our intrinsic value, shares remain overvalued, from our perspective. Though Dexcom has yet to dig a moat, we’ve been impressed with the firm’s ability to consistently improve its technology. From the development of a simplified, more user-friendly continuous glucose monitor for certain countries new to continuous glucose monitors to the imminent European approval of G7, Dexcom has been able to build on its historical strength in accuracy and superior sensors. The firm has also displayed a nimbleness in reacting to competitive pressure from Abbott’s Freestyle Libre and Medtronic’s Guardian Connect CGM. Although the latter two firms have a ways to go to catch up to Dexcom on sensors and accuracy, Dexcom is clearly intent on pressing its advantage and solidifying its head start. As Dexcom works on integrating its CGM and software with various insulin pumps, diabetes management apps, and payer-sponsored disease management programs, we think there could be potential for switching costs and/or intangible assets to emerge and support a moat.