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Here's Why You Should Retain SmileDirectClub (SDC) For Now

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SmileDirectClub, Inc. (SDC - Free Report) has been gaining from a series of cutting-edge innovation, strategic distribution and insurance partnerships. The company’s continued investments to influence consumer decision-making and penetrate new demographics seem strategic. However, stiff competition and escalating expenses raise apprehension.

Over the past year, the Zacks Rank #3 (Hold) stock has declined 77.3% against a 7.6% rise of the industry and 6.8% rally of the S&P 500.

The renowned oral care company has a market capitalization of $900.4 million. Its loss of 25 cents for the fourth quarter of 2021 was narrower than the Zacks Consensus Estimate of a loss of 28 cents.

The company projects 28.1% growth for the next five years compared with the industry’s projected growth rate of 12.5%.

Key Growth Drivers

Innovation Aids Growth: SmileDirectClub is focused on developing products differentiate its offerings in the oral care industry further. During its fourth-quarter earnings call, SmileDirectClub noted the launch of its innovative fast-dissolving whitening strip, which is expected to hit 4,600 Walmart shelves by the end of February 2022. The strips offer a new and convenient way to achieve fast-whitening results without the hassle of traditional strips. The company's other whitening innovations of late include the Wireless Pro Whitening system and Stain Barrier.

Strategic Alliances Add to Growth: In terms of the retail partnership, SmileDirectClub’s oral care products are now available at more than 12,500 retail stores nationwide, including Walmart, CVS, Walgreens and Sam's Club. These partnerships are aimed at serving as a highly efficient lead source and brand-building opportunity.

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In its fourth-quarter earnings call, SmileDirectClub noted that it has teamed up with Carestream Health to use its cutting-edge intraoral scanners across Smile Shops and partner network locations. This partnership will enable the company’s partner network locations to utilize the openness of Carestream's platform for greater flexibility as well as learn how to use a scanner for expanded functionality beyond clear aligner treatment planning.

Achieving Long-Term Growth Target: SmileDirectClub’s long-term strategy includes achieving an average revenue growth target of 20% to 30% per year and adjusted EBITDA margins of 25% to 30% for the next five years. This implies a long-term target on a sequential basis of 5% to 7% each quarter. According to the company, this long-term revenue target reflects the efforts to capture market share while improving customer experience. For 2022, the company expects total revenues in the range of $600-$650 million.


Tough Competitive Landscape: SmileDirectClub competes with a handful of smaller companies with limited market share in the clear aligner industry, including Candid Co., Byte (Dentsply) and SnapCorrect. With the introduction of the company’s collaborative and wholesale partner network, it faces competition from more well-established competitors in the traditional orthodontic industry such as Align Technology, Inc.

Operating Loss in Q4: SmileDirectClub’s fourth-quarter marketing and selling expenses rose 25%. The company incurred an adjusted operating loss of $91.1 million in the reported quarter, wider than the year-ago operating loss of $21.5 million.

Estimate Trend

Over the past 90 days, the Zacks Consensus Estimate for SmileDirectClub’s 2022 loss has moved north by 13.6% to 57 cents.

The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $616.4 million, suggesting a 3.3% fall.

Key Picks

Some better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .

McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 70.5% compared with the industry’s 7.6% growth in the past year.

AMN Healthcare, flaunting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 38.4% versus the 57.7% industry decline.

Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.

Bio-Rad has an earnings yield of 2.3% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.