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Why Is Align Technology (ALGN) Up 3.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Align Technology (ALGN - Free Report) . Shares have added about 3.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Align Technology due for a pullback? 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 Gains on Solid Invisalign Growth in Q1

Align Technology first-quarter 2019 earnings per share (EPS) came in at 89 cents, reflecting a 23.9% decline from a year ago. EPS faced an impact of $29.8 million owing to impairments and other charges related to Invisalign store closures.

However, the figure beat the Zacks Consensus Estimate by 7.2%.

Revenues

Revenues grew 25.7% year over year to $548.9 million in the quarter, surpassing the Zacks Consensus Estimate by 3.5%.
Per management, the top line gained from a double-digit increase in Invisalign case shipments from the year-ago quarter. Moreover, increased revenues from iTero scanner contributed substantially.

Segments in Detail

In the first quarter, revenues at the Clear Aligner segment (85.5% of total revenues) rose 21.7% year over year. Within the segment, Invisalign case shipments amounted to 349,195, up 28.3% year over year. The upside was primarily driven by growing volumes in America and international regions as well as continued expansion of customer channels.

During the quarter, Align Technology Invisalign cases were shipped to 56,710 doctors worldwide, of which 30,200 were in North America and 26,510 in international regions.

Revenues from Scanner and Services (14.5% of total revenues) improved a significant 55.2% to $79.8 million on increased scanner units across several regions.

Margins

Gross margin in the quarter under review contracted 169 basis points (bps) year over year to 73.2% on account of a 34.1% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 23.8% year-over-year increase in selling, general and administrative expenses to $247.1 million and a 26.7% rise in research and development (R&D) expenses to $37.5 million. Accordingly, adjusted operating margin contracted 107 bps to 21.4%.

Financial Details

At the end of the first quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $732.5 million, compared with 744.5 million at the end of fourth-quarter 2018.

In the reported quarter, Align Technology repurchased $50 million of stocks under its buy-back authorization. The company currently has approximately $450 million left under the May 2018 Repurchase Program.

Q2 Guidance

For the second quarter of 2019, the company projects EPS of $1.47-$1.54 on revenues of $590-600 million (indicating 20-22% growth from a year ago). The company estimates Invisalign case shipments in the band of 380,000-385,000, suggesting 20-22% rise from a year ago.

Meanwhile, the Zacks Consensus Estimate for second-quarter EPS is pinned at $1.21 on revenues of $592.5 million. The earnings estimate is below the guided range while that for revenues is slightly above the low end of the projected band.

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 -5.98% due to these changes.

VGM Scores

Currently, Align Technology has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. 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 B. 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. Notably, Align Technology has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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