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Bull of the Day: Align Technology (ALGN)

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In early May I wrote "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."

That story is now being upgraded after another strong quarterly report from the maker of the revolutionary Invisalign "teeth straighteners."

On July 27, Align delivered a nearly 4% revenue beat and a 16% EPS beat. Q2 revenue increased 32.3% year-over-year and 15% sequentially to $356.5 million.

Invisalign case shipments for North America and international were up 27.6% and 37.4% y-o-y, respectively.

Sales Growth is Clearly Aligned with Global Trends

This kind of growth is what made me buy ALGN for my Healthcare Innovators portfolio in early May.

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.

The company is well-established as the leader among US dental professionals for alternatives to traditional braces. So it's the international growth that has me and other investors so excited.

As the emerging middle classes of China and India are exposed to Invisalign solutions, that 30%+ sales growth is expected to continue.

Clear Guidance for Straighter Teeth

Looking ahead, the company anticipates Q3 revenue in the range of $355 million to $360 million, above the analyst consensus last week of $341 million.

Align sees Q3 Invisalign case shipments in the range of 231 thousand to 234 thousand.

The company also projects Q3 EPS in the range of $0.78 to $0.81, about "in line" with consensus.

That EPS guidance is probably another "under promise" effort that the company will easily beat given that big boost in sales guidance.

Analysts Raise Estimates and Price Targets

Top line sales projections for this year and next are now up to $1.4 billion and $1.69 billion, representing 29.3% and 21% annual growth, respectively.

Bottom line EPS forecasts for this year and next moved up to $3.40 and $4.12, representing 41% and 21% annual growth, respectively.

It looks like the analysts were surprised once again by the strong growth trajectory of Align products. BofA/Merrill analysts were so caught off-guard that they had to upgrade ALGN shares from Neutral to Buy.

BofA/Merrill analyst Steven Valiquette also raised their price target to $193 from $175. The analyst believes the Invisalign growth story is in the early innings as Align has a first-mover advantage that is poised to increase market share.

ALGN has consistently been a Zacks #1 Strong Buy since it traded below $60 in 2015. As long as Align keeps delivering that international growth, I'm certain I will be revisiting this story every quarter.

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

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