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Diabetes 'technological wave' has too much upside to ignore: JP Morgan

  • The ongoing changes to glucose monitoring are so important, Marcus added, that medical device companies such as Dexcom are set for "significant" upside.
  • "The diabetes space is currently experiencing its biggest technological wave of innovation from glucose measurement to insulin dosing," analyst Robbie Marcus wrote Friday.
  • Dexcom's stock is up more than 62 percent so far this year. Shares extended their 2018 gains Friday, climbing nearly 4 percent.
After the sensor warmed up, it was off by 25 mg.
CNBC | Erin Black
After the sensor warmed up, it was off by 25 mg.

New technologies for diabetes treatment are becoming essential for those who suffer from the disease, according to J.P. Morgan, and that could make companies such as Dexcom compelling investment opportunities.

"The diabetes space is currently experiencing its biggest technological wave of innovation from glucose measurement (continuous glucose monitoring) to insulin dosing (insulin pumps)," analyst Robbie Marcus said in a note to clients Friday. "CGM is becoming an essential tool for patients and is now at the level of sensitivity that it is eliminating the need for fingersticks with blood glucose monitoring."

Technological advances for glucose checking are so important, Marcus added, that medical device companies such as Dexcom are set for "significant" upside over the next few years. Marcus upgraded shares of Dexcom to overweight and raised his price target on the company to $115 from $80, implying 28 percent upside over the next year.

Dexcom, which produces devices that attach to a patient's skin to monitor blood-glucose levels continuously, has the potential to crush consensus revenue estimates, the analyst added. He predicts that the San Diego-based company could reach $876 million this year, which would beat expectations of $860 million.

"Treatment is shifting towards integrated pumps where the CGM dictates insulin dosing, and in our view the CGM is the much more valuable component of that equation than the pump," Marcus explained. "We think the Street is being too conservative on the near-term sustainability of Dexcom's hardware business (transmitters and receivers) and assuming a significant headwind to both new patient adds and base business patient attrition."

Dexcom's stock is up more than 62 percent so far this year. Shares extended their 2018 gains Friday, climbing nearly 4 percent.

"One of the hidden assets of Dexcom is this investment we've made in technology," chief executive Kevin Sayer told "Mad Money" host Jim Cramer in November. "Our system offers features that competitors don't. We connect to phones. We share data with people who watch patients. We offer performance and accuracy that others don't."