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Momentum

Align Technologies Inc (ALGN - Analyst Report)

Align technologies has been on the momentum radar since they reported Q4 2011 earnings of 28 cents, topping the Zacks Consensus Estimate of 22 cents.  Q4 2011 EPS results represented a 100% increase over the same period in 2010.  For the year, Align’s earnings of 97 cents, surpassed the Zacks Consensus Estimate of 90 cents as well as the year-ago adjusted EPS of 80 cents.

The company beat the street again last week, reporting Q1 2012 EPS of 26 cents, 30% higher than the year-ago period. Adjusted EPS came in at 27 cents, beating the Zacks Consensus Estimate of 22 cents as well as the year-ago quarter adjusted EPS of 21 cents. The adjusted EPS also surpassed the company’s guidance range of 19−21 cents.

All in all, it was a very good 2011 for the orthodontics and technology manufacturer, whose products have now helped over 1.5 million patients around the world.   Early 2012 seems to be looking like a continuation of this strength. 

But it’s not just about invisible braces; ALGN is growing their imaging / scanning segments as well.  A recent acquisition may help propel this growth into the coming quarters.

Company Description & Developments
Align Technology is headquartered in San Jose, California with offices worldwide.  Align was founded in 1997 and received FDA clearance in 1998 and began its first commercial sales of Invisalign to U.S. orthodontists in 1999. In 2000, they had already begun mass marketing in the U.S. and a year later introduced Invisalign to the European market.  By late 2001, Align had manufactured one million unique clear aligners.

The Invisalign system is offered in more than 45 countries and has been used to treat more than 1.5 million patients.

In 2011, ALGN acquired Cadent Holdings, Inc., which was a leading provider of 3D digital oral scanning.   The Cadent deal added the iTero and iOC scanning systems to the Align portfolio and fit well with their system.  Intra-oral scanning systems provide a dental “chair-side” platform for accessing valuable digital diagnosis and treatment tools, with potential for enhancing accuracy of records, treatment efficiency, and the overall patient experience.  Maybe it will replace that nasty resin used to create impressions of your teeth!

Their scanning technology is available in over 20 countries and uses open architecture systems which allow for compatibility with multiple laboratory-based CAD/CAM milling systems and 1,200 dental labs.

Financial Profile
ALGN is a small-cap (2.52 billion) company that is trading at about 28 times forward (expectations for next quarter) earnings.

ALGN became a Zacks Rank 1 Strong Buy on April 26th, after their strong results on April 25th.    

The services company reported a quarterly sales increase of 5 % at their last earnings report, but saw a 3.5% decline in EPS growth for the same period.  At their last report, Align Technologies recorded 33.7% of the total Invisalign Clear Aligner sales from North America orthodontists (up 19.1% year over year to $41.6 million), 36.6% from North American GP Dentists (up 15.1% to $45.2 million), 24.1% from international (up 17.9% to $29.7 million) and 5.5% from non-case revenues (up 24.6% to $6.8 million). 

ALGN is expected to earn $1.12 in FY2012 according to the Zacks Consensus Estimate.

Earnings Estimates
Given the uncertain economic climate, Align still offer a strong outlook for Q2 FY2012. The company expects net revenue in the range $140.2−$143.7 million, which was higher than the Zacks Consensus Estimate of $136 million. The company expects adjusted EPS in the range of 26−28 cents, which was above the Zacks Consensus Estimate of 24 cents at the time. 

In the past couple days; Zacks Consensus Estimates have increased to 28 cents for Q2 given the strong results and growth prospects.  Of the 11 analysts who cover ALGN, the consensus is for the company to grow earnings by 15.5% in the current year (FY2012) and roughly 17.9% in FY2013. 

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were just 7 days ago for the current and next quarters as well as FY2012 and FY2013.    

Market Performance & Technicals
It’s like technical Groundhog Day for most of our momentum stocks and ALGN is no exception.  Since bottoming out in October, the shares have marched slowly higher over the past 6 months or so.

The 50 day moving average crossed above the 200 day back in mid-December 2011 and ALGN has maintained position above that 50 day ever since, with a few breaches here and there.

The stock is now firmly above its 50 and 200 day moving averages of $27.58 and $22.80 respectively.  ALGN seems to consolidate for a while and then breakout or gap higher.  These consolidation periods can last a couple weeks, so it’s best to get long shares closer to the bottom of the channel to get the edge.   Look for the $31.00 level to act as support in this recent gap. 

ALGN has exceeded the S&P 500’s performance by 25.5% in the past year and almost 18% in the past 3 months.  The gap up on earnings put ALGN ahead of the S&P by over 12% in the past 30 days alone.  Momentum should be on this stock’s side, but it’s important to realize that expectations are also on the rise and ALGN will have to deliver if shares are to perform as they have done in the past year.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

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