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Align Technology Rides on Invisalign Amid Coronavirus Woes

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On Oct 1, we issued an updated research report on Align Technology, Inc. (ALGN - Free Report) . The company is riding on strong product development and a consistent focus on international markets. However, the current coronavirus-led economic unrest casts a negative impact on Align Technology’s dental procedures. The stock carries a Zacks Rank #3 (Hold).

Shares of the company have outperformed its industry over the past six months. The stock has surged 115.3% compared with the industry's 25.1% rise.

Align Technology exited the second quarter of 2020 with better-than-expected revenues. Japan, APAC, Taiwan and South Korea saw successful recovery efforts and performed better than the company’s expectations. APAC’s growth was led by China, Taiwan, Hong Kong and South Korea’s position in the recovery curve. APAC reflected improving trends as practices reopened and got the Invisalign business back on track along with COVID-19 recovery measures implemented by Align Technology in China.

Revenues from exocad Global Holdings in CAD/CAM software partially offset promotional discounts-led and lower service revenues. The potential of the company’s Invisalign portfolio and strong solvency position buoy optimism.

Align Technology’s Invisalign clear aligner has been receiving positive feedback and holds huge long-term market potential. The global clear aligners market size was valued at $2.31 billion in 2019 and is projected to reach $5.58 billion by 2027, at a CAGR of 18.7% (a Fortune Business Insight report).

The recent performance of this business, although dull, exhibited the pandemic-led market crisis and accordingly is not expected to last long. We are in fact impressed that even amid such a situation, the company trained a significantly higher number of doctors through virtual courses, summits and forums. Toward the end of the second quarter, Align Technology witnessed recovery in its orthodontic channel with an uptick in Invisalign comprehensive treatments in the teens and pre-teen segment across most regions, with pronounced positive growth in APAC in the teen segment. Further, utilization improved in June, with teen shipments witnessing faster recovery in North America in late May and through June.

Invisalign First for Invisalign treatment in young patients continued its momentum.

Despite the softness within the GP channels, overall, the company saw slower deceleration in teen shipment growth than adults, driven by Germany and France. Further, the expansion markets saw lesser decline and accounted for a negligible decline in EMEA.

On the flip side, in the second quarter, revenues at the Clear Aligner segment fell 39.9% year over year due to volume decline across most regions. Within the segment, Invisalign case shipments were down 38.3% year over year. Invisalign volumes were down 52.2% and 27.1% year over year in the Americas and International regions, respectively. Invisalign volume for teenage patients was down 31.9% year over year.

Revenues from CAD/CAM Services declined 48.1% in the quarter due to COVID-19-led sales decline in most regions, promotional discounts and lower service revenues.

What’s more concerning is that the uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business have compelled Align Technology to refrain from providing any guidance for the third quarter of 2020.

Key Picks

Currently, Align Technology carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the broader medical space include QIAGEN N.V. (QGEN - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Globus Medical, Inc. (GMED - Free Report) .

QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 15.5%. It currently carries a Zacks Rank #2 (Buy).

Globus Medical’s long-term earnings growth rate is estimated at 13%. The company presently carries a Zacks Rank #2.

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