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Why Is Align Technology (ALGN) Up 9.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Align Technology (ALGN - Free Report) . Shares have added about 9.1% 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  Beats on Q3 Earnings

Align Technology's  third-quarter 2019 earnings per share came in at $1.28, reflecting a 3.2% increase from a year ago. The figure beat the Zacks Consensus Estimate by 12.3%.

Revenues

Revenues grew 20.2% year over year to $607.3 million in the quarter, surpassing the Zacks Consensus Estimate by 2.5%.

The robust top-line growth was led by 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 third quarter, revenues at the Clear Aligner segment rose 20.9% year over year. Within the segment, Invisalign case shipments amounted to 385,000, up 20.7% year over year. The upside was primarily driven by continued adoption by teenage and younger patients as well as increased utilization among orthodontists and expansion of the company’s global customer base.

During the quarter, Invisalign volumes were up 13% and 32.1% year over year in the Americas and International regions, respectively. Invisalign volume for teenage patients was 130,000 cases, up 31.5% year over year.

Revenues from Scanner and Services improved a significant 16.5% to $91.1 million on increased sales of iTero scanner and services.

Margins

Gross margin in the quarter under review contracted 153 basis points (bps) year over year to 72% on account of a 27.2% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 29.8% year-over-year increase in selling, general and administrative expenses to $277.5 million and a 21.3% rise in research and development (R&D) expenses to $39.7million. Accordingly, adjusted operating margin contracted 496 bps to 19.8% in the quarter under review.

Financial Details

At the end of the third quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $782.4 million, compared with $720.9 million at the end of the second quarter.

In the reported quarter, Align Technology repurchased 1.1 million stocks for $200 million under its accelerated stock repurchase agreement, introduced last July. The company currently has approximately $200.5 million left under its May 2018 repurchase program.

Q4 Guidance

For the fourth quarter of 2019, the company projects EPS of $1.35 to $1.42 on revenues to$640 million to $650 million (indicating 20-22% growth from a year ago). The company estimates Invisalign case shipments in the band of 400,000-407,000 suggesting a 20-22% rise from a year ago.

Meanwhile, the Zacks Consensus Estimate for fourth-quarter EPS is pinned at $1.38 on revenues of $648.9 million. Both the earnings and revenue estimates lie within their respective projected bands.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Align Technology has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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