On Thursday, Morgan Stanley (NYSE:MS) began covering Tandem Diabetes Care (NASDAQ:TNDM), a medical device company specializing in insulin pumps. The firm assigned an Equalweight rating to the NASDAQ:TNDM shares and set a price target of $45.00. The new coverage reflects a cautious optimism about the company's position in the market, acknowledging its leading technology and potential for growth, yet also considering the competitive challenges it faces.
Tandem Diabetes Care is recognized for its Control-IQ technology, which is the market-leading algorithm for insulin pumps, and its unique Mobi form factor. The company is also expected to become the second, following Insulet (NASDAQ:PODD) Corporation (NASDAQ:PODD), to achieve a full Type-2 diabetes label.
Despite conservative guidance for the year, Morgan Stanley suggests that the lower end of the company's projections may imply flat growth in new patient starts compared to the second quarter, which saw approximately 20,650 new starts.
The analyst notes that while Tandem's stock appears reasonably priced relative to its growth compared to peers, trading at roughly three times its FY25E sales for an expected 12% forward sales compound annual growth rate (CAGR), some of the discount may be attributed to the company's current lack of profitability and lower gross margins.
Furthermore, the stock's recent increase from $35 to $45 post-second-quarter earnings may have already incorporated some of the anticipated growth.
The competitive landscape for Tandem Diabetes Care has intensified with the presence of strong contenders such as Medtronic (NYSE:MDT)'s 780G, Beta Bionics' iLet, and Insulet Corporation's O5 insulin pumps.
While there is a clear bull case for Tandem with potential short-term upside to Street estimates, Morgan Stanley opts for a more balanced view as it evaluates the broader competitive environment leading into 2025. The initiation of coverage at an Equalweight rating with a price target of $45 reflects this cautious but balanced perspective on the company's prospects.
In other recent news, Tandem Diabetes Care has reported substantial second-quarter sales growth of $222 million in 2024, marking a significant milestone with the successful launch of the Tandem Mobi pump platform. This growth, both in the U.S. and international markets, puts the company on track to achieve its 15% sales growth target for the year, with year-to-date sales reaching $415 million.
In addition, the company anticipates 2024 sales to be between $885 million and $892 million, with a 51% gross margin and breakeven adjusted EBITDA.
Amidst potential competition from Eli Lilly (NYSE:LLY) and Medtronic, Lake Street Capital Markets continues to maintain its Buy rating on Tandem Diabetes, emphasizing that the recent developments should not impact Tandem's growth in the next two years. Similarly, Canaccord Genuity has initiated coverage of Tandem with a Buy rating, based on the potential for Tandem to expand its market share through its existing product lineup and future innovations.
Tandem is integrating Abbott's FreeStyle Libre 3+ sensor and investing in digital health platforms, aiming to reach a million users in the next five years. These recent developments underline Tandem's commitment to leveraging advancements in automated insulin delivery technology and expanding its market presence.
InvestingPro Insights
As Tandem Diabetes Care navigates a competitive market, real-time data from InvestingPro provides additional context for investors considering the company's financial health and market position. The company's market capitalization stands at $2.8 billion, indicating its substantial presence in the medical device sector.
Despite challenges in profitability, with a negative P/E ratio of -20.04 reflecting recent losses, management's aggressive share buybacks signal confidence in the company's future. This is supported by the fact that Tandem's liquid assets exceed its short-term obligations, providing financial flexibility.
Analysts have revised their earnings downwards for the upcoming period, corroborating Morgan Stanley's cautious stance. Yet, the company has experienced a high return over the last year, with a 50.86% one-year price total return, demonstrating significant investor enthusiasm. This enthusiasm is further evidenced by a large price uptick over the last six months, boasting a 70.96% increase.
Notably, Tandem is trading at a high Price / Book multiple of 11.96, suggesting that the market may be pricing in expectations for future growth and innovation. For investors seeking a deeper dive into Tandem Diabetes Care's outlook, there are additional InvestingPro Tips available, offering more nuanced analyses and metrics.
For readers looking to explore these metrics further, additional InvestingPro Tips for Tandem Diabetes Care can be found at InvestingPro.
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