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Align (ALGN) Up 6.8% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Align Technology, Inc. (ALGN - Free Report) . Shares have added about 6.8% in that time frame, outperforming the market.

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

Recent Earnings

Adjusting for $0.08 of foreign currency translation related impact, Align reported adjusted earnings of $0.67 per share in the fourth quarter of 2016, up 11.6% from $0.60 in the year-ago quarter. Earnings were at the upper end of the company’s guided range of $0.64−$0.67. Meanwhile, the figure was in line with the Zacks Consensus Estimate.

However, full-year 2016 earnings came in at $2.33, lagging the Zacks Consensus Estimate by 3.3%.

Per management, fourth-quarter earnings were impacted by a stronger U.S. dollar, mainly due to the net realized foreign exchange losses related to the revaluation of certain balance sheet accounts addressing unrealized foreign exchange losses included in other income and expense.

Revenues

Revenues grew 27.3% year over year to $293.2 million in the quarter, in line with the Zacks Consensus Estimate. The top line also met the upper end of the company's expectation of $289.2–$293.9 million.

Full-year 2016 revenues came in at $1.1 billion, up 27.7% year over year and above the Zacks Consensus Estimate of $1.08 billion.

Per management, strong top-line growth resulted from better-than-expected Invisalign and iTero volumes, primarily in North America, offset by lower ASPs, discounts and FX.

Segments in Detail

Revenues at the Clear Aligner segment (85.7% of total revenue) increased 17.5% year over year to $251.5 million in the reported quarter, primarily driven by continued strong Invisalign case volume growth across all customer channels and geographies.

In the fourth quarter, Invisalign case shipments amounted to 190,000, up 18.5% year over year, aided by growth across all regions. During the quarter, Align added 2,615 Invisalign doctors worldwide, out of which 1,420 were from North America while 2280 were from international regions.

Revenues from Scanner and Service (14.3%) improved a massive 156.8% to $41.7 million.

Margins

Gross margin in the fourth quarter was up 7 basis points (bps) year over year to 75.1% on a 26.9% rise in cost of net revenue.

During the quarter, Align witnessed a 30.8% year-over-year increase in selling, general and administrative expenses to $130.2 million and a 55.5% hike in research and development (R&D) expenses to $21.6 million. The operating margin, however, contracted 245 bps to 23.3% due to higher operating expenses.

Financial Details

Align exited 2016 with cash and cash equivalents and short-term marketable securities of $640.2 million, up from $527.2 million at the end of 2015.

In the reported quarter, Align repurchased approximately 0.4 million shares for $38 million under the Apr 2014 program. Subsequent to the year end, the company completed this buy-back plan by purchasing the remaining $3.8 million. Management has $300 million available for repurchase under the 2016 plan which was announced last April.

Guidance

For the first quarter of 2017, the company projects EPS of $0.64−$0.67 on revenues of $295–$298 million. The current Zacks Consensus Estimate for EPS and revenues is pegged at $0.63 and $293.1 million, respectively.

The company also expects Invisalign case shipments in the band of 200,000 to 203,000, up approximately 22%–24% over the same period a year ago.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revision.

VGM Score

At this time, Align's stock has a Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. Charting a somewhat similar path, 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicates that the stock is suitable solely for growth investors.

Outlook

The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.


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