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Stock Strategist

Insulet Shares Swoon on Insurer Decision, but Fair Value Is Unchanged

We think the firm is largely insulated from UnitedHealth's choice of Medtronic.

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 Insulet's (PODD) shares fell substantially following UnitedHealth's announcement that Medtronic (MDT) would be the preferred insulin pump supplier for many of its insureds, but we're standing behind our fair value estimate of $38 per share. We think the market reaction has been exaggerated, particularly in light of Insulet's limited exposure to UnitedHealth's new policy. On the other hand, we've been very impressed by how Insulet's new management team has ramped up growth revenue with its focus on commercial execution in the diabetes segment and development of its drug delivery business.

We think Insulet is largely insulated from UnitedHealth's decision to go with Medtronic. First, UnitedHealth has long refused to reimburse for disposable insulin pump systems such as the OmniPod. Thus, we doubt that many OmniPods are currently being sold to UnitedHealth insureds. Second, UnitedHealth's new policy does not apply to pediatric patients. Thanks to the OmniPod's tubeless design, this product has long been especially appealing to the pediatric diabetic market. Based on management comments, we estimate nearly half of OmniPod new patient starts have consistently been pediatric patients.

Debbie Wang does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.