Back to top

Image: Bigstock

Why Is Align Technology (ALGN) Down 2.6% Since Last Earnings Report?

Read MoreHide Full Article

It has been about a month since the last earnings report for Align Technology (ALGN - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Align Technology due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Align Technology Beats on Q3 Earnings, Margins Up

Align Technology’s third-quarter 2020 earnings per share was $2.25, up from the year-ago earnings per share of $1.48, reflecting an improvement of 52%. The quarter’s earnings per share surpassed the Zacks Consensus Estimate by a stupendous 281.4%. Significantly better-than-expected revenues of Invisalign Clear Aligners and iTero scanners during the third quarter despite the COVID-19 pandemic resulted in the bottom-line beat.

GAAP earnings per share for the quarter was $1.76, up from the year-ago earnings per share of $1.28, reflecting an uptick of 37.5%.

Revenues surged 20.9% year over year to $734.1 million in the quarter, beating the Zacks Consensus Estimate by 38%.

Segments in Detail

In the second quarter, revenues at the Clear Aligner segment rose 20.2% year over year to $620.8 million due to volume increase across geographies. Within the segment, Invisalign case shipments amounted to 496.1 thousand, up 28.7% year over year.

During the quarter, Invisalign volumes were up 24.9% and 33.6% year over year in the Americas and International regions, respectively. In Latin America, the growth was led by Mexico and Brazil whereas the international business was driven by EMEA and APAC.

Invisalign volume for teenage patients was 162.7 thousand cases, up 25.6% year over year. In terms of products performance, the company recorded strong growth across the portfolio and non-comprehensive surpassed comprehensive even with the record adult shipments for the quarter. Growth with the Invisalign Go product also increased among GPs, driven by North America and EMEA. There was an uptick in express package shipments, where North America contributed to the majority of that growth. Overall, both non-comprehensive and comprehensive shipments were up, with continued increased adoption of the company’s Moderate products among the orthodontist and GP channels.

Revenues from Imaging Systems & CAD/CAM Services surged 24.5% to $113.4 million in the quarter due to higher shipments and services. Sequentially, Align Technology recorded continued momentum with the Element 5D Imaging System, witnessing growth in North America and the APAC region.

Margins

Gross profit in the third quarter was 534.1 million, reflecting an improvement of 22.1% year-over-year. Gross margin in the quarter under review expanded 71 basis points (bps) year over year to 72.7% despite a 17.8% uptick in cost of net revenues.

During the quarter, Align Technology witnessed a 12.6% year-over-year increase in selling, general and administrative expenses to $312.5 million and a 12.2% rise in research and development expenses to $44.5 million.

Operating income in the quarter under review was $177.1 million compared with operating profit of $120.4 million year over year, indicating an uptick of 47.1%. The operating margin expanded 430 bps to 24.1%.

Financial Details

At the end of the third quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $615.5 million compared with $404.4 million at the end of the second quarter of 2020.

Cumulative net cash provided by operating activities was $280.8 million at the end of the third quarter compared with $529.1 million in the year-ago period.

The company currently has approximately $100 million left under its May 2018 repurchase program.

Guidance

The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business have compelled Align Technologies to refrain from providing any guidance for the fourth quarter of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 42.81% due to these changes.

VGM Scores

Currently, Align Technology has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Align Technology has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Align Technology, Inc. (ALGN) - free report >>

Published in