Here's Why You Should Retain Tandem Diabetes (TNDM) for Now
Investors are optimistic about Tandem Diabetes (TNDM) owing to robust international pump shipments and product launches.
Tandem Diabetes Care, Inc. TNDM is well poised for growth on strong international expansion and new product launches. The huge international demand for t:slim X2 pump, with robust international pump shipments in the second quarter, look encouraging. A raised full-year sales guidance also instills optimism. However, escalating costs and tough competition do not bode well for the stock.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 10.3% versus 2.3% decline of the industry and the 28.4% rise of the S&P 500.
The renowned medical device company has a market capitalization of $7.96 billion.
The company’s earnings are projected to grow 168.9% for the next year, which compares to the industry’s growth projection of 21.7% and the S&P 500’s estimated 14.9% growth for the next year. The company surpassed earnings estimates in three of the trailing four quarters and missed in one, the average surprise being 75.1%.
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Let’s delve deeper.
Factors At Play
Impressive Product Pipeline: Tandem Diabetes, in its earnings call for the second quarter of 2021, noted the availability of t:slim X2 technology in more than 20 countries worldwide. The company launched Control-IQ in Canada in the reported quarter. Its distribution partners are preparing to launch Control-IQ in Germany and France. In terms of product launch, the company made good progress in the first half of 2021 and is well-positioned domestically and internationally through 2021 and beyond. We are encouraged by the company’s current product pipeline under development, which consists of automated insulin delivery (AID) systems, a next-generation hardware platform as well as connected (mobile) health offerings.
Focus on International Markets: With huge prospects in the diabetes market worldwide, Tandem Diabetes’ decision to go global has come at an opportune time. The company registered high international demand for the t:slim X2 pump in the second quarter. Pump shipments to the international market surpassed the company’s expectations, reaching 13,200 for the quarter. This brings the total to more than 60,000 customers for the global installed base. Year to date, the company registered sales of $82 million till the end of the second quarter. This represents 26% of the company’s worldwide sales compared to 19% in the first half of 2020, as noted in the company’s second-quarter earnings call.
Upbeat Sales Guidance: We are upbeat about Tandem Diabetes’ raised sales forecast for 2021. The company projects sales in the range of $670-$685 million, which indicates annual sales growth of 34% to 37%. Further, the company expects full-year international sales in the band of $160-$165 million, suggesting annual sales growth of 92% to 98%.
Escalating Expenses: During the second quarter of 2021, Tandem Diabetes’ selling, general and administrative expenses rose 3%. Meanwhile, research and development expenses increased 22.7% on continued focus to drive long-term sales and profitability initiatives. Rising operating expenses are building pressure on the company’s bottom line.
Tough Competition: Tandem Diabetes operates in a highly competitive environment, dominated by large multinational corporations with significant resources to start-ups. The company primarily competes with MiniMed, a division of Medtronic plc MDT. Notably, MiniMed boasts a major part of the conventional insulin pump market share in the United States.
Coronavirus Impact: The coronavirus pandemic is wreaking havoc on the economy as a whole, with Tandem Diabetes facing the impact since March. The company expects to continue to witness a greater proportional impact on its international markets due an increased variability caused by the pandemic. The reason for this is the resurgence of infection in some areas along with stringent preventive measures in others.
Over the past 90 days, the Zacks Consensus Estimate for Tandem Diabetes’ earnings has moved north to 29 cents.
The Zacks Consensus Estimate for its third-quarter 2021 revenues is pegged at $172.8 million, suggesting a 39.8% rise from the year-ago reported number.
Two better-ranked stocks from the Medical-Instruments industry include Alcon Inc. ALC and Intuitive Surgical, Inc. ISRG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alcon has a long-term earnings growth rate of 17.7%.
Intuitive Surgical has a long-term earnings growth rate of 9.5%.
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