Americans are getting heavier and have been for a while. According to the Centers for Disease Control and Prevention, U.S. obesity prevalence has increased since 1999, from 30.5% to 41.9%, with severe obesity growing from 4.7% to 9.2%.
With all that extra weight comes an increased likelihood of certain obesity-related conditions, such as heart disease, strokes, certain cancers, and type 2 diabetes. According to MarketStudyReport, a market research firm, the global diabetes care devices market was $23.3 billion in 2022 and is projected to reach $32.7 billion by 2028, representing a compound annual growth rate of 4.95% over this period.
Abbott Laboratories (ABT -0.35%) and DexCom (DXCM 0.61%) are both poised to benefit from increased spending on diabetes care devices as they manufacture continuous glucose monitoring devices used by diabetes patients. Which healthcare company is the better buy? Let's see.
The case for Abbott Laboratories
Abbott Laboratories stock is down over 4% in 2023 and more than 10% over the past 12 months. What's hurting it lately is news that the Securities and Exchange Commission and Federal Trade Commission are investigating Abbott in connection with its infant formula business.
The company had a voluntary recall and manufacturing shutdown of certain infant formulas at its plants a year ago after U.S. Food and Drug Administration (FDA) investigators found cronobacter sakazakii bacteria at the company's Sturgis, Michigan plant. At least two dozen families are suing Abbott over allegedly contaminated formula.
Abbott's big advantage over DexCom is its size and scope, which makes it easier to adapt to changing market conditions, or to overcome legal judgments. It has more than 115,000 employees, compared to roughly 8,000 for DexCom. Abbott operates in four segments: nutrition, diagnostics, medical devices, and established pharmaceuticals.
Abbott reported full-year and fourth-quarter earnings on Jan. 25. 2022 revenue totaled $43.7 billion, up 1.3%, with earnings per share of $3.91, down 0.8%. In the fourth quarter, the company reported revenue of $10.1 billion, down 12% year over year, thanks mostly to reduced COVID-19 testing sales. Earnings per share (EPS) were $0.59, down 46.8% compared to Q4 2021.
One big bright spot for Abbott was diabetes care sales of $4.8 billion for the year, up 9.9%. Within those sales, the company's Freestyle Libre continuous glucose monitors (CGMs) reported sales of $1.1 billion in Q4, up 40% year over year. This was thanks in part to the FDA's 2022 clearance of the Freestyle Libre 3 model, said to be the world's smallest CGM.
Another positive sign for Abbott was its diagnostics sales, which, excluding COVID testing sales, were $16.6 billion in 2022, up 6%. Diagnostics was led by rapid diagnostics products, whose sales were $10.2 billion in 2022, up 19%. Abbott's guidance points to a down year in 2023, saying it expected EPS between $3.15 and $3.25, down 18%.
The company is a favorite of income investors because it has increased its quarterly dividend for 51 consecutive years, That includes an 8.5% boost in December 2022 to $0.51 per share, equal to a yield of around 1.97%, slightly above the S&P 500 average dividend.
DXCM Revenue (Annual) data by YCharts
The case for DexCom
DexCom's stock is up only slightly in 2023, but up more than 19% over the past year. The company's sole products are CGMs and CGM-related peripherals.
DexCom's price-to-earnings ratio (P/E) of 140 makes it appear less of a buy than Abbott's P/E of about 26. But the reason the stock is more expensive is DexCom's continued growth and its profit margin of 64.7%, compared to Abbott's profit margin of 56.1%.
The company reported $2.91 billion in revenue in 2022, up 19%, and EPS of $0.82, up 54.7%. In Q4, that growth didn't slow down, with revenue of $815.2 million, up 17% year over year, and EPS of $0.22, compared to an EPS loss of $0.01 in the same period a year ago.
This could be another big year for DexCom. The DexCom G7, its latest CGM, was cleared by the FDA last year and just launched on Feb. 17. The company made a big splash with an ad during the Super Bowl for the product featuring singer Nick Jonas, who has type 1 diabetes. The G7 is covered by Medicare. The device's sensor is only slightly larger than Abbott's Freestyle Libre 3, and also operates in conjunction with a phone app.
In its 2023 guidance, the company said it expects revenue of between $3.35 billion and $3.49 billion, up 15% to 20%, and a non-GAAP gross profit margin of between 62% and 63%.
Making a solid choice
Choosing between these stocks may depend on what kind of investor you are. While both are good long-term choices, Abbott has a longer track record as a company and more diversity in its revenue streams. And because of its dependable dividend, it may be better for income-oriented investors. However, its infant formula issues could also be a drag on the company's stock price for a while, and the company's own guidance points to lower EPS in 2023.
DexCom has a less diverse business model. However, the company's revenue and EPS growth and better margins make it the better play for growth-oriented investors with a longer window of investing. And in the short term, it may be the better choice because it isn't facing lawsuits or investigations.
