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Bear of the Day: Align Technology (ALGN)

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Align Technology (ALGN - Free Report) , the $16 billion maker of the premier clear dental "aligners" Invisalign, has seen growth estimates drop sharply in the wake of the global pandemic as dentists dramatically reduced patient care. 
Even before the company's Q1 report on April 29, EPS projections for 2020 were falling from nearly $7 to almost $5. Then a 32% miss of 73 cents vs. expectations of $1.07 and withdrawn guidance caused this year's consensus to drop to $3.77. That's why ALGN is a Zacks #5 Rank Strong Sell right now.
ALGN reported revenues that edged up 0.4% year over year to $550.9 million in the quarter but missed the Zacks Consensus Estimate by 6.3%.
Align Technology president and CEO Joe Hogan described the challenges for the company...
"For Q1'20, total revenues were $551 million, down 15.2% sequentially and unchanged year-over-year, reflecting significantly lower than expected sales of Invisalign clear aligners and iTero scanners due to the COVID-19 pandemic. Revenues from clear aligners were $481.6 million and iTero scanner & services were $69.4 million. Clear aligner shipments were 359.4 thousand cases. Notwithstanding the impact of COVID-19, shipment volumes were up 2.9% year-over-year, reflecting solid growth from non-comprehensive products driven by the Invisalign Go system across all regions, as well as Invisalign Moderate. This was offset by a lower mix of comprehensive products due primarily to the shortfall in China."
China Coming Back
In an interview on CNBC's Mad Money, Hogan said it was a strong quarter, but that it fell apart in last two weeks when dental offices shut down. He noted the China order rate has bounced back 80%-85% since their economic re-opening and he expects a surge in demand when the COVID-19 crises passes. Hogan also offered that the company has recently added employees and expects business to grow 20%-30% per year.
One of the biggest bulls on the Street, Credit Suisse analyst Erin Wilson Wright, lowered the firm's price target on Align Technology to $275 from $320 and kept an Outperform rating on the shares. The analyst thought shares might edge lower following a disappointing Q1 miss and lack of clarity as it relates to expectations for the balance of 2020, noting several factors remain in flux as varying geographies enforce or lift social distancing protocols at a staggered and seemingly unpredictable pace.
But surprisingly, investors have reacted with continued buying at the $200 level and Monday saw a 12.6% jump to highs above $230 not seen since early March.
I've been a big fan of Align Technology for many years, ever since I first bought shares below $100. Part of the bull thesis is not only do they offer an affordable teeth-straightening solution that makes over 2 million teens smile brighter, but that this technology is digitally-based and their precision iTero scanner is the key to huge markets in China and India where remote manufacture and care is possible. That market is worth over $20 billion this decade and Align has barely penetrated 10% of it.
Bottom line for ALGN: If investors are shrugging off the 30% collapse in earnings and looking ahead to Align's continued dominance in emerging markets with affordable digital dental technologies, then $200 may be the floor for some time. But best to wait for confirmation from a turnaround in the EPS estimates. The Zacks Rank will let you know.
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