4 Tailwinds Driving Raymond James' Insulet Bull Case

Raymond James identified four major tailwinds for Insulet Corporation PODD that the firm said could help drive 20-percent-plus revenue growth over the next two years.

The Analyst

Raymond James analyst Jayson Bedford upgraded Insulet from Market Perform from Outperform with an $80 price target.

The Thesis

Share Gain Opportunity: Insulet is likely to benefit from a more favorable industry structure and share gain opportunity, Bedford said in a Monday note. (See the analyst's track record here.)

The 50,000 U.S. users left in the lurch following Johnson & Johnson JNJ‘s exit from the insulin pump market will be seeking an alternative when their contracts expire, the analyst said.

Insulet is now operating in a three-player market, though it boasts only a 15-percent share of the U.S. pump market. Being the No. 2 player, Insulet can grow its market share for "many years," Bedford said. 

• CMS Reimbursement: With Medicare reimbursement for the OmniPod likely imminent, Raymond James projects an incremental 300,000-plus user opportunity, assuming only Type 1 patients. It's a $1-billion market opportunity on the basis of Insulet's current service providers, according to Raymond James. 
• Going Direct Internationally: Insulet's move to distribute directly provides another source of growth. This is despite Bedford conservatively assuming a sharp deceleration in new user additions. 
• New Product Momentum: Raymond James said DASH, Insulet's new Bluetooth-enabled OmniPod and PDM, will be the first new product in five years. The company can exert some pricing power with DASH due to the favourable industry dynamics and its lower upfront cost business model, Bedford said. 

The Price Action

"If PODD can maintain its current 2018 forward multiple (7.7x sales) over the next year, the stock can trade into the low $80s," Bedford said. The shares have nearly doubled over the past year.

Insulet was trading up 10.44 percent at $75.94 at the time of publication. 

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