Dexcom Earnings: Perfect Storm Pulls Down Revenue Growth, Margins, and Our Fair Value Estimate

Through the confluence of several factors, no-moat Dexcom ran into a wall in the second quarter with disappointing results that significantly lowered its outlook. While we’ve lowered our fair value estimate to $94 per share, down from $105, to reflect operational issues that we suspect will need some time to work out, the market reaction driving shares down over 30% in premarket trading looks like an overreaction to us. This near-term turbulence notwithstanding, underlying demand for continuous glucose monitors, or CGMs, and Dexcom’s reputation for superior accuracy haven’t changed, which leaves us comfortable that the firm can get back on track as it irons out execution issues.