DexCom's Prospects Have Grown Brighter as U.S. Launch of G7 Nears; Raising Our Fair Value Estimate

DexCom reported impressive third-quarter results, and we’ve raised our fair value estimate to $92 per share, up from $81, to reflect our upbeat expectations of the next few years, as several factors converge to support strong double-digit revenue growth over our explicit forecast period. Nonetheless, shares remain significantly overvalued, from our perspective. We think DexCom has worked strategically to reinforce its leadership position in the continuous glucose monitor, or CGM, market, in the face of a serious competitive push by both Abbott and Medtronic. The firm’s able navigation of a changing competitive landscape over the last few years has given us more confidence that DexCom has carved out a competitive advantage that can be maintained, and we plan to revisit our thinking on its current no-moat status, especially considering that the company has crossed over into the black and has begun delivering return on invested capital in excess of its cost of capital.