This CGM Device Maker Is Likely To Outperform Abbott Stock

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We believe DexCom stock  (NASDAQ: DXCM) is currently a better pick than Abbott stock (NYSE: ABT), given its better prospects. Although Abbott is trading at a comparatively lower valuation of 3.8x trailing revenues vs. 12.3x for DexCom, this gap in the valuation is largely justified given DexCom’s superior revenue growth and lower financial risk, as discussed below.

If we look at stock returns, ABT, with a 30% fall this year, has fared better than a 39% decline for DXCM stock, but both have underperformed the broader S&P 500 index, down 23%. There is more to the comparison, and in the sections below, we discuss why we believe DXCM stock will offer better returns than ABT stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis Abbott vs. DexComWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. DexCom’s Revenue Growth Is Far Better

  • DexCom’s revenue growth of 23.2% over the last twelve months is higher than 13.2% for Abbott.
  • Even if we look at a longer time frame, DexCom’s sales growth has been better. It rose at an average annual growth rate of 33.6% to $2.4 billion in 2021, compared to $1.0 billion in 2018, while Abbott saw its revenue rise at an average annual rate of 12.4% to $43.1 billion in 2021, compared to $30.6 billion in 2018.
  • Abbott’s sales growth over the recent years was driven by a very high demand for Covid-19 testing. However, as the Covid-19 cases decline, the demand for testing is also expected to fall, weighing on Abbott’s diagnostics business in 2023.
  • That said, the company’s medical devices and established pharmaceutical sales will likely see steady growth over the coming years.
  • DexCom is one of the few players, along with Abbott, which has secured regulatory approvals for its wearable continuous glucose monitoring (CGM) device. There is a high demand for CGM devices that do not require a finger prick, and data can be self-monitored easily. Given the limited competition and a vast pool of diabetic patients (over 34 million in the U.S. alone), the company will likely see strong revenue growth over the coming years.
  • DexCom’s future sales growth will likely be bolstered by the launch of its much-anticipated G7 CGM system in the U.S.
  • The aging population in the U.S. and its rising awareness about diabetes products have aided the demand for CGM products.
  • Our Abbott Revenue and DexCom Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, DexCom’s revenue is expected to grow faster than Abbott’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 20.6% for DexCom, compared to a 4.1% CAGR for Abbott, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Abbott Is More Profitable

  • Abbott’s operating margin of 23.6% over the last twelve-month period is better than 11.5% for DexCom.
  • This compares with 16.1% and 13.4% figures seen in 2019, before the pandemic, respectively.
  • Abbott’s free cash flow margin of 22.5% aligns with 22.3% for DexCom.
  • Our Abbott Operating Income and DexCom Operating Income dashboards have more details.
  • Looking at financial risk, DexCom fares better. Its 6.3% debt as a percentage of equity is lower than 9.7% for Abbott, while its 14.1% cash as a percentage of assets is higher than the 12.5% for the latter, implying that DexCom has a better debt position and also has more cash cushion.

3. The Net of It All

  • We see that DexCom has demonstrated better revenue growth and offers lower financial risk with a better debt position and more cash cushion. On the other hand, Abbott is more profitable and is available at a comparatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe DexCom is currently the better choice of the two, despite it being the more expensive of the two.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 21% for Abbott over this period and a 101% expected return for DexCom stock, implying that investors will likely be better off buying DXCM over ABT, based on Trefis Machine Learning analysis – Abbott vs. DexCom – which also provides more details on how we arrive at these numbers.

While DXCM may outperform ABT, it is helpful to see how Abbott’s Peers fares on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Xylem vs. Merck.

With higher inflation and the Fed raising interest rates, among other factors, ABT stock has fallen 30% this year. Can it drop more? See how low Abbott stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
ABT Return -5% -30% 155%
DXCM Return -1% -39% 444%
S&P 500 Return -8% -23% 63%
Trefis Multi-Strategy Portfolio -12% -26% 194%

[1] Month-to-date and year-to-date as of 9/28/2022
[2] Cumulative total returns since the end of 2016

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