DexCom

DexCom's second-quarter results included solid 11% year-over-year growth in US revenue, while international sales rose more strongly at 16% in constant currency.

Why it matters: Though DexCom struggled with quality issues in 2025, the solid performance in the first half of 2026 leads us to believe the firm is mostly beyond that turbulence and is now focused on converting more users to the new 15-day G7 continuous glucose monitor, or CGM. Management indicated the conversion is progressing as planned, and by the end of 2026, roughly half of current users will be on the 15-day sensor. We think that's doable and would put DexCom in a strong position going into 2027.

The bottom line: With DexCom on track to meet our full-year expectations, our slight adjustments to our near-term assumptions weren't material. We reiterate our $79 per share fair value estimate. With shares trading up recently, we think the stock is close to fairly valued. We remain confident in DexCom's narrow moat, which is supported by intangible assets. The firm continues to invest in clinical studies to demonstrate the impact its CGMs can have on diabetes management.

Big picture: As we had anticipated, DexCom presented highly favorable trial data illustrating the efficacy of its CGM among type 2 diabetes patients who do not use insulin. The test group lowered its HbA1c by a substantial 1.6 percentage points, compared with 0.7 for the control group. This study adds to the growing body of evidence supporting the use of CGMs among all type 2 patients, even before they use any insulin. This user segment is roughly 3 times larger than the 8 million Americans who use insulin. DexCom has already submitted this trial data to the Centers for Medicare and Medicaid Services. This study moves the entire CGM field one step closer to expansion of reimbursement to cover all type 2 diabetes patients.

We've lowered our fair value estimate to $79 per share from $88 after tempering our revenue expectations in 2026 and assuming a more gradual gross margin benefit from the lower-cost G7 15-day sensor. We think it could take some time in 2026 to fully iron out quality issues with the G7 that emerged in 2025. With new sales reps in the early stages of building relationships with practitioners, softer demand in Europe due to increased tariffs, and key payers shifting to the lower-margin pharmacy channel, we expect that pressure on the top line and margins could increase in 2026. However, the lower cost of manufacturing the G7 should be a countervailing factor and should support margin improvement over our explicit forecast period.

We anticipate that solid patient demand over the longer term will translate into favorable prospects for DexCom. Growth drivers include the adoption outside the US to penetrate the Type 2 insulin-dependent patient population, Medicare's reimbursement among the less intensively managed Type 2 diabetes patients who are only on basal insulin (which adds another 3 million patients to the pool in the US), and an expected Medicare decision to cover CGMs for diabetes patients who have yet to use insulin (an incremental 28 million Americans). With recent hints of slower growth in 2026, we project revenue growth to average 12% annually over the next five years. There may be upside to our assumption if DexCom smooths out execution and expansion of CGM reimbursement comes online faster than we expect. We assume DexCom will reach operating margin of 22% by 2030, thanks to the G7 15-day sensor, which should be considerably less expensive to manufacture at scale.

We think DexCom has now dug a narrow economic moat around itself. As is typical of medical devices, it can take longer than anticipated to turn the corner into profitability, especially compared with biopharmaceutical firms. DexCom finally crossed into the black in 2019 after years of fast growth and subscale operations. Perhaps more important, the firm has demonstrated its ability to innovate, despite significant pressure from competitors with new offerings. This was the key factor that we were less confident of several years ago, as key competitors were introducing truly novel CGM technology that offered a different user experience. It wasn’t yet clear how well DexCom would defend against these competitors. But the firm delivered next-generation CGM technology that was comparable with what Abbott had to offer, and we expect DexCom can keep up with sea changes in this fast-developing market.

We think DexCom’s moat rests on its intangible assets. These include intellectual property, clinical data supporting the accuracy of its sensors, a sterling reputation among endocrinologists and Type 1 patients for offering the most accurate sensors, and the firm’s ability to consistently introduce meaningful innovation. We anticipate DexCom can continue to offer new features, such as lengthening sensor life, shrinking the size and profile of the CGM, making the insertion less painful, and improving accuracy. Meaningful innovation should allow DexCom to compete on dimensions other than price.

Unlike most diagnostics, where it is challenging to create tight connections to healthcare outcomes, DexCom is in a strong position to do so. And the closer the linkage to outcomes, the stronger the manufacturer’s negotiating position is with payers. DexCom has made significant progress on this front with its therapeutic indication, which means the patient can make treatment decisions based on CGM readings without confirming the blood glucose levels with a traditional meter. Further, the emergence of automated insulin delivery (which involves integrating DexCom’s CGM with an insulin pump) moves the CGM technology one step closer to medical outcomes, as the pumps can automatically release insulin doses in response to the blood glucose values provided by the CGM.

Notably, CGMs have allowed for real-time tracking of time in range, which has become a key metric that practitioners and patients rely on as a measure of how well diabetes is managed. Uncontrolled or poorly managed diabetes can lead to complications, including amputation, kidney failure, and blindness. DexCom’s CGM is worn continuously for 10-15 days at a time, and blood glucose readings are spit out every 5 minutes. This near-constant stream of data lets patients know when their blood sugar levels fall within or outside the healthy range. The more time patients stay in range, the more likely they are to avoid complications. This kind of ongoing, real-time tracking of blood glucose is a major advancement over the point-in-time blood glucose meters that typically provided two to four blood glucose readings in a day for Type 2 patients. It also ties the CGM much more closely with health outcomes, giving it a leg up on most other diagnostic technologies.

Most moats in diagnostics also rely on switching costs. However, we don’t think DexCom has cultivated any switching costs. As with many other point-of-care diagnostics, DexCom generally faces low switching costs because patients can fairly easily swap out one CGM for another. We think switching has become even easier now that some CGMs are available through the more accessible pharmacy channel.

Overall, we view DexCom's exposure to environmental, social, and governance issues to be relatively limited. The biggest ESG risk, in our view, is related to product governance. Considering that the company's CGM patients receive insulin dosing based on diagnostic readings provided by DexCom, errors or defective equipment could result in harm to the patient (for example, diabetic coma). This could also leave DexCom vulnerable to legal action. Thus far, DexCom has not run into these situations.

DexCom's G7 product is significantly less expensive and offers a thinner profile and faster warm-up time than the G6.

Medicare's decision to reimburse for the G6 and G7 for Type 1 and Type 2 insulin-using patients is a favorable development for DexCom, as private payers often use Medicare as the benchmark for reimbursement policies.

As the growing body of clinical evidence demonstrates CGMs' ability to improve time in range, we think this will become the standard of care for all diabetes patients, even those not using insulin.

Considering DexCom's sensors are already the most accurate, there's less opportunity for significant improvements on that dimension, compared with key competitors.

Payers and patients shifting to the lower-margin pharmacy channel could put more pressure on DexCom's margins.

There generally aren't many switching costs for end users. This could make it harder to retain users if more user-friendly competitive products enter the market.