Investors love momentum. It's exciting. Of course, there's always the question about whether the momentum is sustainable.
Three healthcare stocks definitely enjoying strong momentum right now are DexCom (DXCM -1.29%), Regeneron Pharmaceuticals (REGN 0.20%), and ResMed (RMD 0.29%). All three of these stocks recently hit 52-week highs, with two of the three setting all-time highs.
What's the reason behind the impressive momentum for DexCom, Regeneron, and ResMed? And are these high-flying stocks still buys?
Check out the latest DexCom earnings call transcript.
DexCom doesn't just have one reason for its strong momentum. It has multiple reasons.
The medical-device maker reported strong revenue and earnings growth throughout 2018. DexCom consistently beat analysts' earnings estimates. The company benefited from favorable Medicare decisions that expanded access to Medicare patients for its products. And, perhaps most important, DexCom received regulatory approvals in the U.S. and Europe for a new product that should fuel growth for a long time to come.
In March 2018, the Food and Drug Administration approved DexCom's G6 continuous glucose monitoring (CGM) system. European approval for the G6 product came three months later. Unlike previous CGM systems, DexCom's G6 doesn't require fingersticks for calibration of the device. It also included other new features including a one-touch simple insertion of the sensor applicator and predictive alert for low blood sugar levels.
The convenience of the G6 CGM is proving to be very popular with diabetic patients. DexCom hasn't officially reported its 2018 financial results yet, but the company expects year-over-year revenue growth will be in the ballpark of 42%. It also thinks that sales could jump between 15% and 20% in 2019.
2. Regeneron Pharmaceuticals
Check out the latest Regeneron Pharmaceuticals earnings call transcript.
2018 was an up-and-down year for Regeneron, but the big biotech is definitely on an upswing now. Regeneron's newfound strength appears to stem largely from investors' optimism about the biotech's prospects for winning new indications for two key drugs.
Regeneron's flagship product is Eylea. The blockbuster eye-disease drug generates over 60% of Regeneron's total revenue. The company hopes to win yet another indication for Eylea in May when the FDA is scheduled to announce an approval for the drug in treating diabetic retinopathy.
The biotech's No. 2 moneymaker is Dupixent. Regeneron and partner Sanofi won FDA approval for the drug in treating atopic dermatitis (eczema) in 2017, followed by approval for moderate-to-severe asthma in October 2018. The two drugmakers seek to add an expanded atopic dermatitis indication for adolescent patients between the ages of 12 and 17, as well as obtain European approval for Dupixent in treating asthma.
Investors also have great expectations for Regeneron's new skin-cancer drug, Libtayo. Regeneron and Sanofi secured FDA approval for the drug in treating cutaneous squamous cell carcinoma in September 2018 and now await European approval. Despite tough competition, Libtayo could become another blockbuster in Regeneron's lineup.
Check out the latest ResMed earnings call transcript.
ResMed's success over the last year resulted from a combination of solid financial performance and several strategic acquisitions. Although the stock fell in the midst of the broader market pullback that started in October, shares have bounced back in a major way since then.
It certainly didn't hurt that the medical-device company, which primarily focuses on treating sleep apnea and other respiratory diseases, started off its fiscal year 2019 with a bang. ResMed announced on Oct. 25, 2018, that its adjusted earnings per share jumped 23% year over year.
ResMed acquired HEALTHCAREfirst in May 2018. This deal bolstered ResMed's presence in the home-care software-as-a-service market. The company picked up another software provider in November with its $750 million acquisition of MatrixCare, which has over 15,000 customers in the long-term and post-acute care market.
While the HEALTHCAREfirst and MatrixCare deals were outside of ResMed's core business focus, the company announced another acquisition in December that wasn't. ResMed is buying Propeller Health for $225 million. Propeller Health provides connected health solutions for people living with chronic obstructive pulmonary disease (COPD) and asthma.
Are they buys?
DexCom, Regeneron Pharmaceuticals, and ResMed are solid companies with good growth prospects. But I think that only one of these stocks is a buy right now.
Regeneron's future looks better now than it has over the last couple of years. However, the biotech is highly reliant on Eylea. My concern is that Eylea could run into serious competition in the not-too-distant future from Novartis' late-stage eye-disease drug brolucizumab.
ResMed's sleep apnea device business should keep rocking along. But with the stock's gains in 2018, I'm not convinced that ResMed will deliver consistent market-beating growth over the next few years.
That leaves DexCom. The launch of DexCom's G6 CGM is still only in its early stages. Significant growth opportunities remain, especially in the Medicare patient population and outside of the U.S. Of the estimated 415 million people worldwide with diabetes, only 50% have been diagnosed. Many of those still don't receive care.
I'm also optimistic about the potential for the G7 CGM that DexCom is developing with Alphabet subsidiary Verily. This device is a fully disposable CGM that's simple and cost-effective. DexCom likes to say that the G7 is "the future of CGM technology." That's probably not an exaggeration.
DexCom stock looks ridiculously expensive based on earnings multiples. However, I think the stock could still provide great returns over the long run.