Bank CEOs meet with Trump to discuss Fannie Mae and Freddie Mac - Bloomberg
On Wednesday, Morgan Stanley (NYSE:MS) downgraded Tandem Diabetes Care (NASDAQ:TNDM) stock from Overweight to Equalweight and slashed the price target to $22 from $45. The stock, currently trading at $19.49, has fallen sharply by 42% in the past week alone. According to InvestingPro data, the company is trading near its 52-week low of $18.77, while 11 analysts have recently revised their earnings expectations downward. The firm expressed concerns over the company’s guidance for only mid-single digit growth in top-line revenue and U.S. new patient shipments. Analysts at Morgan Stanley were taken aback by the modest outlook, particularly since it included minimal contribution from anticipated catalysts such as Type 2 label expansion and pharmacy access.
The revised guidance from Tandem Diabetes prompted Morgan Stanley to reassess the stock’s valuation, resulting in a significant reduction in the price target. The new target is based on approximately 1.5 times the company’s expected 2025 enterprise value to sales ratio, a discount compared to peers with similar growth rates. InvestingPro analysis suggests the stock is currently undervalued, with healthy fundamentals including a strong current ratio of 2.93 and gross margins of 52.07%. The firm’s analysts pointed to competition as a key factor in the cautious outlook and the weaker finish to 2024.
Despite acknowledging progress in gross margins expected in 2025, Morgan Stanley finds it challenging to envision a successful profitability scenario for Tandem Diabetes while growth remains modest. The analysts’ updated discounted cash flow (DCF) model now assumes a 3% terminal growth rate, 12% terminal operating margins, and a 10% weighted average cost of capital (WACC).
The report also outlines new bull and bear cases for the stock. The bull case, with a price target of $40, is contingent on 2025 sales exceeding the higher end of guidance at $1,012 million, driven by an increase of 1,000 to 2,000 additional pump shipments. Conversely, the bear case sets the price target at $15, based on the possibility of sales falling short of guidance at $964 million due to a nearly 10,000 global pump shipment shortfall.
Morgan Stanley’s downgrade reflects a tempered outlook for Tandem Diabetes Care amid a competitive landscape and the absence of significant catalysts that could drive the stock price higher over the next 12 months. The firm advises caution as the potential for further market share erosion remains a risk for the company. For deeper insights into Tandem Diabetes Care’s financial health and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, featuring detailed analysis of key metrics, competitive positioning, and growth drivers among 1,400+ top US stocks.
In other recent news, Tandem Diabetes Care reported a significant earnings surprise for the fourth quarter of 2024, with earnings per share of $0.01, surpassing the forecast of -$0.21. The company’s revenue also exceeded expectations, reaching $282.65 million against a forecast of $251.3 million. Despite the positive financial results, investor concerns about future profitability and competitive pressures were evident. Additionally, Tandem Diabetes provided a 2025 revenue outlook between $997 million and $1.007 billion, indicating a growth of 10-11%, which is slightly below the consensus estimate.
Citi analysts recently downgraded Tandem Diabetes from a Buy to Neutral rating, lowering the price target from $35 to $24, citing uncertainties in the company’s future performance. Similarly, Bernstein analysts downgraded the stock from Outperform to Market Perform, reducing the price target to $25 from $35. The downgrades were influenced by Tandem’s loss of market share in U.S. type 1 new pump starts and increased competition from new entrants like Beta Bionics.
Tandem Diabetes is also navigating strategic changes, including a U.S. sales expansion and a transition of overseas distributors, which could complicate operations in 2025. The company’s gross margin slightly improved to 50.7% year-over-year, but adjusted EBITDA fell short of expectations. Analysts have expressed concerns over Tandem’s ability to achieve positive earnings per share amid these challenges.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.