Back to top

Analyst Blog

We recently downgraded medical device company, Align Technology (ALGN - Analyst Report), to Underperform based on the company’s dismal third quarter results and disappointing outlook for the fourth quarter.

Estimates for Align Tech, which focuses on the orthodontics market, have been declining ever since it reported preliminary third quarter results in October. Align Tech’s third quarter revenues as well as EPS of $136.5 million and 28 cents missed the Zacks Consensus Estimates of $140 million and 29 cents, respectively. Fourth quarter guidance (revenue of $134.2 - $137.8 million and EPS of 21 - 23 cents) was also disappointing.

Following the release of third quarter results, the Zacks Consensus Estimate for 2012 has gone down 7.4% to $1.13 per share. The Zacks Consensus Estimate for 2013 has also declined significantly (down 11.5% to $1.23 per share). With the Zacks Consensus Estimates for both 2012 and 2013 going down, the company now has a Zacks #4 Rank (Sell).

Cause for Concern

Align Tech recently said that it will be able to achieve just the lower end of its previously issued fourth quarter guidance. Continued weakness in the global economy that resulted in a challenging environment for dental technology sales is expected to impact fourth quarter results. Moreover, Hurricane Sandy led to significant sales disruptions, affecting Align Tech’s customer practices.

On top of this, a series of bad news like the termination of two distribution agreements and higher management quitting the company also add to our concern. Given the third quarter performance and the challenging outlook, we fail to see any significant catalyst that could drive the shares in the near term. Gross margins will also remain under pressure.

With the company saying that it may only be able to achieve the lower end of its fourth quarter guidance, the Zacks Consensus Estimate for the fourth quarter has gone down 25.8% to 23 cents. Chances remain that fourth quarter results could lag expectations by 4.35%.

Med-Tech Stocks That Warrant a Look

While we prefer to avoid Align Tech until we see signs of improvement in the company's performance, other medical device stocks worth a look are Span-America Medical Systems Inc. and Merit Medical Systems, Inc. (MMSI - Snapshot Report). Both are Zacks #1 Rank (Strong Buy) stocks.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UNITED THER… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%