Once Again, Baird Predicts End To Tandem's 'Fantastic' Run

Without pause, Tandem Diabetes Care Inc TNDM has surged 1,915 percent year-to-date. One sell-side analyst said Friday that the medical device manufacturer's valuation has peaked. 

The Rating

Baird Equity Research analyst Jeff Johnson downgraded Tandem from Outperform to Neutral and raised the price target from $42 to $47.

The Thesis

Tandem awaits a number of near-term catalysts that could bolster its valuation, Johnson said in the Friday downgrade note. (See his track record here.) 

The ramp of Basal-IQ, mid-2019 launch of Control-IQ, late 2018 penetration of the international market and possible resumption of coverage under UnitedHealth Group Inc UNH could help sustain a relatively high stock price, the analyst said. 

As such, Baird isn't too concerned with Tandem’s fundamentals.

“For the vast majority of that run, we've been fully on board, as we continue to believe TNDM is well-positioned to continue gaining share in the rapidly expanding $3-billion worldwide insulin pump/AID market." 

Even considering the possible growth opportunities, the analyst said Tandem trades between 45 and 55 times the 2021 forecast for earnings before interest, tax, depreciation and amortization.

“Even in this crazy medtech market, we believe that feels aggressive, especially as it also represents a sizable (15-50 percent) premium to the 2021 EBITDA multiple at which we estimate diabetes peers PODD and DXCM currently trade,” Johnson said, referencing Insulet Corporation PODD and DexCom, Inc. DXCM.

It’s worth noting that Baird has been wrong before.

“Over the course of TNDM's fantastic run this year, we've thought many times this stock might be due for a breather, only to be proven wrong each time,” the analyst said. “Given that, we fully acknowledge the potential near-term folly of our trying to make a valuation call on this name today.”

Price Action

At the time of publication, Tandem shares were down 7.48 percent at $47.34. 

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Photo courtesy of Tandem Diabetes.