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On Monday, BTIG analysts maintained their Buy rating and $120.00 price target for DexCom (NASDAQ:DXCM) shares, despite the company receiving a warning letter from the FDA. The stock, currently trading at $77.84, has experienced a significant 9.5% decline over the past week, with InvestingPro data indicating oversold conditions. DexCom disclosed in an 8-K filing that the FDA issued the warning following inspections of the company’s manufacturing facilities in San Diego, California, and Mesa, Arizona, which took place in October-November 2024 and June 2024, respectively. The FDA’s concerns were related to manufacturing processes and quality management system deficiencies.
The warning letter, dated March 4, 2025, addressed shortcomings in DexCom’s responses to previous FDA observations. However, DexCom has indicated that the warning does not imply a significant impact on its manufacturing capacity or financial projections. The company, which maintains a strong market position with a $30.4 billion market capitalization and an "GOOD" InvestingPro Financial Health score, confirmed that it is not restricted from producing, marketing, or distributing its products and does not necessitate any product recalls. DexCom also stated that the warning would not hinder its ability to seek FDA 510(k) clearance for new products.
DexCom’s investor relations team has communicated that corrective process controls were put in place three months prior in response to the FDA’s initial observations. The company’s management remains confident that the warning will not affect its commercial operations or delay the FDA review of its 15-day sensor. With a healthy gross profit margin of 60.5% and robust revenue growth of 11.3% in the last twelve months, the company maintains strong fundamentals. While margin guidance was not explicitly reiterated in the filing, the company does not anticipate any changes to these metrics at this point.
The company plans to submit a written response to the FDA’s warning within the required 15 business days and is committed to working with the agency to clarify its processes. Although the timeline for resolving the regulatory issues is currently uncertain, BTIG analysts believe that DexCom will effectively address the FDA’s concerns without major disruptions to its commercial and regulatory activities. Based on InvestingPro’s analysis, the stock currently appears undervalued, with analysts maintaining a strong buy consensus and a high price target of $120.
In other recent news, DexCom pre-announced its fourth-quarter 2024 revenue, reporting an 8% organic growth to $1.114 billion, which exceeded consensus estimates by approximately 1.5%. This growth was supported by a record number of new user additions both in the U.S. and globally. Despite this, DexCom’s fourth-quarter earnings per share of $0.45 fell short of the $0.52 consensus estimate. For the full year 2024, the company reported an 11% increase in revenue, reaching $4.03 billion, with U.S. revenue up 10% and international revenue rising 15%. Looking ahead to 2025, DexCom forecasts revenue of approximately $4.6 billion, slightly below the $4.61 billion consensus. The company also expects a non-GAAP gross profit margin of 64-65% and an operating margin of about 21%. Analysts from Bernstein have raised their price target for DexCom shares to $100, up from $89, while maintaining an Outperform rating. This adjustment reflects the company’s improved stability in the latter half of 2024 and its ongoing efforts to address sales force productivity and market share challenges.
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