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SmileDirectClub (SDC) New Alliances Aid, Macro Woes Hurt

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SmileDirectClub has been gaining from the execution of strategic initiatives and rigorous cost management. However, margin pressure remains a concern. The stock carries a Zacks Rank #3 (Hold).

SmileDirectClub continues to see growth in the adoption and use of teledentistry by dental and orthodontic industries. This is further boosted by the expansion of the company’s professional partnerships with well-established and respected national Dental Support Organizations, demonstrating the adoption of telehealth by the dental community.

Further, SmileDirectClub is focused on developing transformative innovations to serve the growing needs of both the current customer base as well as expanded segments of higher-income demographics and teams. The company has invested more than $400 million for capital expenditures during the past five years to develop a state-of-the-art production facility and robust technology platform.

In May 2023, SmileDirectClub announced the U.S. launch of its SmileMaker Platform (SMP), expanding its patented technology to its largest market. This patented technology is an industry-first. It marks an upgrade from the current 2D remote scanning options and introduces real-time AI to capture a 3D view of the teeth. The company’s latest enhancement to be used with SMP is the new AI capability that creates photorealistic after renderings, showing the new alignment of teeth.

In terms of 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.

The company introduced SmileDirectClub sales specialists in targeted partner network practices to better educate customers about the differences between its two service offerings, CarePlus and the traditional virtual care offering. Management earlier expected that by the end of August, SmileShop team members at all locations in the United States will have the ability to provide a dual journey offering that educates and allows customers, with bookings at CarePlus partner network practices, the option to choose between CarePlus and virtual care regardless of the initial appointment type book.

On the flip side, in the face of an unpredictable macroeconomic environment, SDC’s core business faces the brunt of increased inflationary impact on its customers, reflected in the lower consumer discretionary spending and a challenging economic environment.  In recent times, the company experienced significant inflation in materials, freight and labor costs due to the rapid increase in business activity across the globe. In addition, SDC faced setbacks in obtaining parts, materials, components and final assemblies because of the significant stress on the global supply chain.

In the second quarter of 2023, the company’s gross margin was 129 basis points, down from the year-ago quarter due to the deleveraging of fixed costs on lower aligner sales volumes.

Meanwhile, SmileDirectClub competes with a handful of smaller companies that collectively have 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 also faces competition from more well-established competitors in the traditional orthodontic industry, such as Align Technology, Inc.

Over the past year, shares of SmileDirectClub have declined 67.5% against the industry’s 12.5% rise.

Key Picks

Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , Quanterix (QTRX - Free Report) and SiBone (SIBN - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Haemonetics’ stock has risen 15% in the past year. Earnings estimates for Haemonetics have increased from $3.56 to $3.74 for 2023 and from $3.96 to $4.07 for 2024 in the past 30 days.

HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 19.39%. In the last reported quarter, it posted an earnings surprise of 38.16%.

Estimates for Quanterix’s 2023 loss per share have narrowed from $1.19 to 97 cents in the past 30 days. Shares of the company have increased 159.4% in the past year against the industry’s decline of 4.1%.

QTRX’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 30.39%. In the last reported quarter, it posted an earnings surprise of 55.56%.

Estimates for SiBone’s 2023 loss have narrowed from $1.42 to $1.27 per share in the past 30 days. Shares of the company have increased 23.1% in the past year against the industry’s fall of 2.1%.

SIBN’s earnings beat estimates in all the trailing four quarters, the average surprise being 20.37%. In the last reported quarter, SiBone delivered an earnings surprise of 26.83%.

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