The crisis in Ukraine is pushing up energy and food prices, prompting analysts to revise Western growth estimates amid fears of a boomerang effect from sanctions on Russia. Aside from oil stocks, which are obviously growing fast, almost everything else is down.
So far this year, the healthcare sector is the worst performer, down 20%. However, investors shouldn’t worry about the healthcare system’s prospects. These are promising, as many quality healthcare stocks are poised to reboot once the current headwinds abate.
Dexcom (DXCM) is one of the healthcare stocks best positioned for a strong recovery, according to Wall Street analysts. I am also bullish on this stock.
The company is a California-based developer of a human blood glucose monitoring system.
Q4 2021 Results and Full-Year Margins
For the fourth quarter of 2021, pro forma earnings were $0.68 per share, missing the median consensus estimate by $0.17 on revenue of nearly $700 million, in line with median guidance. Revenue increased 23% year-over-year.
Sales in the U.S. grew by 15% and sales abroad by 54%.
The U.S. market accounts for about 75% of total sales, while the overseas market accounts for 25%.
By segment, Sensor and Other revenue (about 85% of total revenue) grew 29% to $600 million, while Hardware revenue (about 15% of total revenue) declined 4% to $100 million.
Relevant numbers for the full year 2021 include the following:
• a 27% annual growth in total revenue to $2.45 billion.
• a 176% year-over-year increase in adjusted gross profit margin to 68.7% of total sales.
• a year-over-year decline of 150 basis points in adjusted operating margin to 15.1% of total revenue.
• a year-over-year drop of 270 basis points in adjusted EBITDA margin to 23.6% of total sales.
Financial Condition
The company’s balance sheet is strong, reflected in an interest coverage ratio of 2.6, and a current ratio of 5.1.
The first ratio means the company will have no problem paying interest expenses on its total outstanding debt of $1.9 million through the end of 2021. The second ratio means the company is generating enough cash ($2.73 billion as of December 31, 2021) to meet short-term obligations.
No dividend has been paid to date.
Outlook: Strong Demand for Glucose Meters
It is expected that the use of Dexcom blood glucose meters will increase in the future as the predisposing conditions for type 2 diabetes such as obesity, excessive alcohol consumption, smoking, stress and cardiovascular disease are sadly increasing in society, as these are strongly correlated with modern lifestyle.
According to statistics from Market Growth Reports, the human glucose monitoring market is expected to grow at more than 7% per year for the next seven years to 2028, when it is expected to reach nearly $5 billion in size.
Today, healthcare providers have another reason to favor these devices, as glucose monitoring is critical to sustaining human lifespans in the COVID-19 era.
The virus responsible for the pandemic in 2020 particularly affects overweight and diabetic people.
Guidance
For the full-year 2022, the company expects revenue of between $2.82 billion and $2.94 billion, versus analysts’ median forecast of $2.92 billion.
The company also expects the adjusted gross profit margin to be 65% and the adjusted operating margin to be 16% of total sales.
The company also expects its adjusted EBITDA margin to be around 25%.
Wall Street’s Take
For the past three months, 13 Wall Street analysts have issued a 12-month price target for DXCM. The company has a Strong Buy consensus rating based on 12 Buys, and one Hold.
The average Dexcom (DXCM) price target is $563.46, implying a 36.5% upside potential.
Conclusion
The stock is suffering the effects of market rotation to the energy sector, but the company is poised for a strong rebound once the headwinds pass.
The company will benefit from strong demand for glucose meters.
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