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Bull of the Day: Align Technology (ALGN)

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Align Technology (ALGN - Free Report) is one of the strongest medical technology success stories of the past year, with 27.8% sales growth in 2016 and an expected 25%+ top line ramp in 2017.

First quarter company earnings, reported on April 27, confirmed that the growth story for the $11.4 billion maker of the revolutionary dental technology Invisalign is well intact.

In 1999, Align Technology pioneered the invisible orthodontics market with the introduction of the Invisalign system and by 2001 had manufactured one million unique clear aligners.

Smiles All Around for a Record Quarter

In its quarterly report, the company delivered adjusted EPS of 85 cents, up 71% from the year-ago quarter. Earnings were higher than the company’s guided range of 64-67 cents and thus clobbered the consensus for a 27% beat.

More importantly, the sales growth continues to surprise too as Align delivered its strongest quarter of Invisalign case shipment growth since early 2010, with worldwide shipments +27.1% year-over-year including international shipments +41% and North America up 20%.

Overall, revenues grew 30.0% year over year to a record $310.3 million in the quarter, surpassing the Zacks Consensus Estimate of $297 million.

Clear Guidance for Straighter Teeth

For the second quarter, this growth is expected to persist, with management guiding to 25-27% case shipment growth and 26-28% revenue growth next quarter. And for full-year, management is now calling for case shipment and company-wide revenue growth of 25%, all above analyst estimates prior to the company conference call.

Here were comments from Align Technology President and CEO Joe Hogan, courtesy of the company press release on April 27...

"2017 is off to a great start with first quarter revenues, volumes, gross margin and EPS above our expectations. For the quarter, net revenues were up 30% year-over-year, driven by strong Invisalign case shipments of 27% year-over-year to a record 38.9 thousand doctors shipped to during the quarter. These results reflect growth from both our North America and International regions, and higher than expected teenage cases across the board, which increased 32% year-over-year."

Since the report, Wall Street analysts have moved quickly to raise their earnings estimates, bumping the full-year 2016 consensus from $3.00 to $3.25 and taking 2017 profit projections up 8.4% to $3.89.

Competition/Patent Risks vs. International Growth

On Friday April 28, I reported on the end of my first week at the helm of Zacks newest long-term investor portfolio Healthcare Innovators. Here's what I told my group of subscribers...

Straight Up for Straight Teeth

One mid-cap I hesitated on this week was Align Technology, maker of the Invisalign dental products, who just had a terrific earnings report and launched 12% higher today.

I had thought the valuation was a little rich given some potential patent risks. Plus, the stock had just run $30 -- 33% from $90! -- since late January.

So I thought we could wait. Then last night they delivered a 27% EPS beat and a 4.6% sales beat! Shares blasted up to $145.

We won't find all the winners right away with impeccable timing. But ALGN certainly fits the definition of a Healthcare Innovator and I'll be reading the analyst reports this weekend to learn more about the patent risks, valuation and potential upside.

(end of 4/28 notes)

On Monday May 1, after some weekend due diligence, I decided it was time to grab ALGN. Here's what I told members in my buy alert...

As we discussed on Friday, this one's not a Zacks #1 yet, but it will be. Estimates and price targets are moving nicely higher as I type and will filter into the Rank by mid-week. Also, I did some homework on the patent risks for the maker of the revolutionary corrective dental technology Invisalign. The risk is not as sizable as the strong demand and potential in international markets for this amazing smile-maker!

Most price targets are moving toward $150. That means we could see some downside on profit-taking after the stock's 40% run in the past few months. You could definitely wait and look to accumulate this name on dips under $130. But, barring a big market correction, I don't think we'll see anything below $120 any time soon.

(end of 5/1 buy alert)

In my long-term view, the international growth potential in both developed and emerging markets is the clincher for owning Align.

And analysts at Baird Equity Research addressed the coming competition from companies like Dentsply Sirona (XRAY - Free Report) and 3M Company (MMM - Free Report) in a recent research report. They believe that new market entrants can help grow the clear aligner market as the technology becomes more popular with dentists and patients.

This "new level of acceptance" among the two most important decision makers for clear aligner prescriptions compelled the Baird analysts to raise their rating on ALGN shares to Outperform and their price target from $105 to $155.

While smart investors anticipated Align's growth and have been accumulating shares for some time, there is still short-term opportunity in buying dips in this 25% grower. And the long-term looks even better.

Disclosure: I own ALGN shares for the Zacks Healthcare Innovators portfolio.

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