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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 was upgraded in July 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.

And guess what Align Technology did again when they reported their Q3 results on October 26?

You guessed it, they beat on the top and bottom lines and raised guidance yet again. Here is simple table that illustrates their sequential (quarter-over-quarter) and comparable (year-over-year) growth...


On these numbers, which exceeded all Wall Street analysts expectations, ALGN shares jumped 16% higher the next day and have flirted over $240 on several days.

In the few days that fresh analyst estimate revisions have had a chance to filter into the Zacks Rank, all growth projections are rising with 2017 revenues expected to see a 33% advance while EPS looks to climb 47.6%.

And 2018 estimates see 24.6% and 21.4% growth on the top and bottom, respectively. I expect to see those numbers rise into the new year, but right now this is sustained high growth that institutional investors want to sink their teeth into and they will gladly pay over 30 times for it on a P/E multiple basis.

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.

Analysts Catch Up

Back in July, some analysts were a little surprised 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 his price target to $193 from $175 in late July. The analyst noted that the Invisalign growth story is in the early innings as Align has a first-mover advantage that is poised to increase market share.

But other analysts have been on top of the story all along. Stifel Nicolaus analyst Jonathan Block believes utilization among orthodontists will continue into 2018 which drives up his model estimates and his price target from $225 to $245.

Block cited a recent review of orthodontists that suggests Invisalign volume increased 25% in 2017 and notes that about 80% of survey respondents save not said they are aware of a comprehensive clear aligner coming to market in 6-12 months to challenge Invisalign.

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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