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Here's Why You Should Hold on to Align Technology for Now

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Align Technology, Inc. ALGN has been gaining from robust segmental growth. Increased guidance for 2020 and continued momentum in Invisalign buoy optimism.

Over the past year, shares of the Zacks Rank #3 (Hold) company have outperformed its industry. The company has lost 6.1% compared with a 9.8% decline of its industry.

The renowned medical device provider specializes in clear aligner therapy, intra-oral scanners, and CAD/CAM (computer-aided design and computer-aided manufacturing) digital services used in dentistry, orthodontics and dental records storage. It has a market capitalization of $17.69 billion.

 


 

The company projects 21.5% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 12.7%, on average, over the trailing four quarters.

Let’s delve deeper.

Impressive Q4 Results: Align Technology exited fourth-quarter 2019 with better-than-expected results. We are upbeat about its continued momentum in Invisalign volumes across all geographies. We are also encouraged by the solid adoption of the Invisalign treatment across the teenage patient market. The expansion of the Invisalign customer base, which totaled 67,000 active doctors worldwide in the fourth quarter, buoys optimism. The company also registered a solid uptick in its Scanner and Services revenues.

Focus on iTero: Recently, the use of iTero scanners for Invisalign case submissions continues to grow and remains a catalyst for Invisalign utilization. iTero scanner and services registered robust revenue growth in the fourth quarter, driven by strength in all regions. We also look forward to the company’s global distribution deal with Zimmer Biomet Dental for the iTero Element suite of intra-oral scanners.

Product Launches: We are optimistic about the commercial launch of the iTero Element 2 scanner in China in August 2019, with the first Made-in-China iTero Element 2 produced in its manufacturing facility in Ziyang. The company also launched the ClinCheck In-Face Visualization tool in February for the Invisalign Go system.

Downsides

Overdependence on InvisAlign Technology System: A vast majority of Align Technology’s total net revenues largely depend on the sale of its InvisAlign Technology System and the trend is expected to continue at least for some time. However, management fears that if orthodontists and GPs experience a reduction in the consumer demand for orthodontic services or consumers become reluctant to adopt InvisAlign Technology, it might hurt the company’s business heavily.

Competitive Landscape: Align Technology faces significant competition from traditional orthodontic appliance (or wires and brackets) players such as 3M’s Unitek. The company also competes with products similar to InvisAlign Technology, including products from Ormco Orthodontics, a division of Sybron Dental Specialties. Align Technology witnessed a continuous decline in higher average selling prices, primarily resulting from advantage rebate, promotional activity and product mix.

Estimate Trend

The company is witnessing a positive estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved 0.4% north to $6.75.

The Zacks Consensus Estimate for the company’s first-quarter 2020 revenues is pegged at $622.7 million, suggesting a 13.4% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, Medtronic plc MDT and Hill-Rom Holdings, Inc. HRC.

ResMed has a projected long-term earnings growth rate of 14.5%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.

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