By Mackenzie Tatananni
DexCom has had a rough ride this year. The medical technology company is grappling with concerns about its slowing growth and allegations of faulty blood glucose monitors.
However, DexCom is "already turning the corner," according to one analyst, as it takes aim at reliability issues and other factors that have caused shares to drop 17%.
Morgan Stanley analyst Patrick Wood upgraded the stock to Overweight from Equal Weight on Tuesday, citing a favorable risk/reward balance moving out of a challenging year for the maker of continuous glucose monitors.
Wood also lifted his price target to $75 from $63. Shares were 2.4% higher at $65.07 on Tuesday, outstripping a 0.2% gain for the S&P 500.
DexCom's troubles began in earnest in March, when the Food and Drug Administration issued a warning letter accusing DexCom of modifying its G6 and G7 glucose monitors without approval, which the regulator said raised the health risks for users.
Its woes have only continued since then. In September, short seller Hunterbrook Research targeted the company for the first time, claiming unreliable G7 readings had caused hospitalizations and patient deaths. The report sparked a selloff, sending shares down nearly 12% over two sessions.
DexCom has since owned up to its reliability issues, saying they originated with the subcut needle insertion mechanism rather than the sensor itself. However, this admission hasn't softened the blow, seeing as company has suffered some topline and gross margin impact from discarding defective products during the production process, Wood noted.
The company insists these reliability issues have been addressed, and it has implemented higher inspection standards on the manufacturing lines to ensure the quality of shipped G7s. Moreover, the concerns are already reflected in the stock price, Wood argued.
"We think the worst of the headwinds are already behind the company while valuation remains at trough levels," the analyst wrote. In his view, "trough valuation and bearish sentiment are lagging the fundamental turnaround here."
And while commentary from management has yet to trigger a meaningful rebound, more transparency is a positive. "We think management also struck the right tone on the Q3 call around the nature of and responsibility for G7 reliability issues," Wood wrote.
Additionally, he believes the company has been "making the right decisions around expedited shipments as needed to supply patients despite the margin hit." DexCom leveraged faster shipping earlier this year in response to supply-chain issues, particularly with the G7 monitor.
The G7 15-day, which launched in the U.S. on Monday, could serve as a catalyst for the stock. Wood expects ramping volumes to lend themselves to margin expansion, along with the phaseout of expedited shipping and elevated discard rates.
Crucially, Dexcom should rerate on what Wood foresees as a "steady stream of catalysts." This includes the coming launch of Smart Basal capability on the G7 platform, a new insulin dosing optimizer specifically for patients with Type 2 diabetes.
The second and third quarters of the coming year "could be the most impactful stretch," Wood contended, "where we expect management to utilize the planned Investor Day to reestablish trust in the products, pipeline, company communication, and business trajectory."
While September's short report caused market panic at the time, it has done little to dent investor sentiment. Of 33 analysts polled by FactSet, 28 rate DexCom at Buy or Overweight. Five rate the stock at Hold, and none at Sell.
Barron's named DexCom a stock pick in July, arguing that it looked ready to recoup its losses after Type 1 sales constricted with a shift to Type 2 population last year. Since the recommendation was made on July 9, shares have fallen more than 23%.
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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December 02, 2025 12:10 ET (17:10 GMT)
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