DexCom Inc. DXCM is off to a strong start in 2025, with its stock rallying 5.7% following the release of its preliminary results for the fourth quarter and fiscal 2024 on Jan. 13, 2025. The company’s robust performance has reaffirmed investor confidence, driven by impressive revenue growth and a promising outlook for 2025. The upbeat results demonstrate DexCom’s position as a key player in the continuous glucose monitoring (CGM) market.

The preliminary report highlighted fourth-quarter fiscal 2024 total revenues of at least $1.11 billion, an 8% increase from the same period in 2023. U.S. revenues reached approximately $803 million, representing a 4% rise year over year, while international revenues climbed 17% to around $310 million.

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In the year-to-date period, DXCM stock has gained 8.5% while its peer Abbott Laboratories ABT inched up 0.3%.DXCM has outperformed the Zacks Medical Instruments sector and the S&P 500 Composite’s growth of 6.7% and 2%, respectively, in the same time frame.

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However, DexCom faces several challenges that could impact its growth trajectory. Rising competition from companies like Abbott and Senseonics threatens its market share, while slower CGM market growth also remains a concern. Additionally, macroeconomic uncertainties, including inflation and potential recessionary pressures, could affect consumer adoption and healthcare budgets.

Let’s delve deeper and figure out the best course of action for your portfolio regarding the DXCM stock.

DXCM’s Recent Developments Propelling Its Growth

Strength in DexCom’s Stelo Device: DexCom's Stelo platform, an innovative software solution, has been a key driver in enhancing the user experience and broadening the company's market reach. By integrating real-time glucose data with popular consumer devices like smartphones and wearables, Stelo provides seamless monitoring for diabetes management. This platform not only improves patient engagement but also strengthens DexCom's partnerships with tech companies like Apple and Fitbit, offering greater convenience and accessibility. The adoption of Stelo has been positively impacting DexCom's revenues, as it attracts new customers and deepens relationships with existing ones while positioning the company as a leader in the growing digital health space.

Expanding Market Presence: DexCom has strategically expanded its footprint into emerging economies where diabetes prevalence is rising. By introducing products like DexCom ONE+ and the G7, the company has tapped into underserved markets, such as Australia and France, where national reimbursement policies have recently improved.

In Japan, new customer starts have reached record levels, supported by an expanded sales force and growing clinical community awareness. These efforts have positioned DexCom to capture significant market share in regions with high unmet medical needs.

Robust Product Launches: In December 2024, DXCM announced the launch of a proprietary Generative AI (GenAI) platform, making Dexcom the first CGM manufacturer to integrate GenAI into glucose biosensing technology. In November, DexCom inked a partnership with OURA with plans to expand its services into smart ring technology, a trending health-tracker device.

The collaboration is aimed at revolutionizing metabolic health management by integrating DexCom's glucose biosensor data with the biometric insights provided by the Oura Ring. The companies will also co-market and cross-sell each other’s products. The first app integration resulting from the partnership is expected to be launched in the first half of 2025.

DXCM Earnings Estimates Depict Upward Movement

For 2025, the Zacks Consensus Estimate for revenues is pegged at $4.60 billion, indicating year-over-year growth of 14.6%.

The Zacks Consensus Estimate for 2025 earnings is pegged at $2 per share, which has decreased 3 cents in the past 30 days. The figure indicates a year-over-year increase of 17.37%.

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DXCM’s Long-Term Growth Prospects

Increasing Diabetes Prevalence: Per a report by the International Diabetes Federation, the prevalence of diabetes is projected to increase to 783 million adults by 2045, a whopping  46% increase from 2021. DexCom seems to be well-positioned to capitalize on this trend by continuing to innovate and expand its product offerings.

The company's leadership in CGM technology offers critical real-time insights into blood glucose levels, which is essential for diabetes management. As global demand for health tech grows, DexCom’s innovative, user-friendly, and expanding product portfolio meets the needs of a wider range of diabetic patients, especially in emerging markets.

Strategic Collaborations & Acquisitions: DexCom has formed several strategic collaborations to enhance its CGM offerings, particularly by integrating its devices with insulin delivery systems for semi-automated insulin delivery. Key partnerships include Tandem Diabetes Care TNDM, with the t:slim X2 insulin pump and Control-IQ technology, and Insulet with the Omnipod 5, which show improved health outcomes when paired with DexCom CGMs. The use of these systems has demonstrated long-term benefits, maintaining glycaemic improvements for up to two years.

Additionally, DexCom has expanded its reach with the launch of DexCom G7 integration with Tandem’s t:slim X2 and other systems globally. These collaborations position DexCom to strengthen its market presence and expand access to its CGM systems, enhancing diabetes management and driving future growth.

Key Challenges for DexCom

DexCom faces competitive challenges that could negatively impact its short-term performance. Abbott's Freestyle Libre, with its wider adoption and lower cost, threatens DexCom's market share, especially in price-sensitive markets. Abbott's economies of scale in the United States and Europe allow it to offer more affordable CGM systems, hindering DexCom's growth among budget-conscious consumers.

Additionally, Senseonics' implantable CGM, with a longer sensor life, provides an alternative for patients seeking less frequent maintenance, intensifying competition. While DexCom has a technological edge with insulin delivery integration, the competition from Abbott and Senseonics may lead to market share loss in the short term.

Slower CGM market growth can also negatively impact DXCM. The CGM market growth in the United States slowed to approximately 10% in the fiscal third quarter of 2024, a significant dip from more than 20% growth observed in earlier periods. This deceleration raises concerns about market saturation or reduced adoption rates. While DexCom remains optimistic about long-term market potential, this trend underscores the need for continuous innovation and expanded market penetration.

Valuations Concern Persist

DXCM stock is currently trading at a premium compared to the Medical Instruments industry. Its forward 12-month P/E of 41.76X is higher than the industry’s 33.14X at this moment. Though the lofty valuation indicates high expectations for growth, the company's near-term prospects remain somewhat muddled.

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Conclusion: Hold DXCM Stock for Now

For now, retaining DexCom stock, carrying a Zacks Rank #3 (Hold), seems the most prudent strategy due to the company’s robust product innovations, expanding presence in emerging markets and strength in its Stelo CGM device. However, challenges such as slower CGM market growth, high valuations and increasing competition raise concerns. Despite these concerns, DexCom's solid future outlook and leadership in the CGM space make it a stock worth holding for now, with long-term growth potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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