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Align Technology (ALGN) to Report Q1 Earnings: What's in Store?

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Align Technology, Inc. ALGN is set to report first-quarter 2020 results on Apr 29, after the closing bell.

In the last reported quarter, the company delivered a positive earnings surprise of 10.1%. The company has a trailing four-quarter earnings beat of 12.7%, on average.

Let’s take a look at how things are shaping up prior to this announcement.

Factors at Play

Invisalign System

Align Technology is expected to have gained from continued adoption of Invisalign system in the first quarter of 2020.

Invisalign portfolio expansion, revenue growth at the Clear Aligner segment on sustained Invisalign case volume growth across customer channels and geographies, and growth in the teenage patient segment are likely to get reflected in the upcoming quarterly results. We believe Invisalign First, Invisalign Go and treatment with Mandibular Advancement have seen continued strength in the first quarter.

Align Technology, Inc. Price and EPS Surprise


Align Technology, Inc. Price and EPS Surprise

Align Technology, Inc. price-eps-surprise | Align Technology, Inc. Quote

In Latin America, Align Technology’s sustained investments in the Clear Aligner segment should get reflected in the Invisalign volume growth. Of late, the company has been witnessing solid momentum across comprehensive and non-comprehensive products in Latin America, led by Brazil. This trend is expected to have continued through the first quarter.

In the first two months of the first quarter of 2020, for the American markets, we expect this segment to have registered growth on consistent strength in Invisalign volumes in orthodontist and GP channels (including DSOs) as well as continued uptick in the number of teenage patient cases. However, since late February, when coronavirus took the shape of a pandemic, the global healthcare industry started to postpone non-emergency and elective procedures to focus on COVID-19 treatments. This is likely to have weighed on the company’s performance.

Internationally, for the to-be-reported quarter, the company anticipates strong Invisalign volume growth across geographies. Align Technology has a strong international presence, with China being one of its largest country markets. Given the coronavirus crisis, we are wary of the impact on first-quarter 2020 revenues. However, increased adoption of Invisalign First in Japan, ANZ and Taiwan as well as favorable results from professional marketing initiatives is expected to have driven Invisalign growth during the first quarter.

Launches like Invisalign moderate package and SmileView in the fourth quarter 2019 are expected to have driven the company’s top line in the first quarter 2020.

Scanner & Service Business

Align Technology has been generating solid revenues from the Scanner and Service business over the past few quarters. The company has been witnessing increased adoption of iTero scanners for Invisalign case submissions, especially in North America and the Asia-Pacific region. We expect this to get reflected in first-quarter results.

Commercialization of the iTero Element 2 and rollout of the Element Flex scanners are likely to have continued in the first two months of the quarter. However, sales in the Asia-Pacific region have in all probability been hurt by coronavirus since the beginning of the quarter.

Q1 Guidance

For the first quarter of 2020, the company expects 20,000-25,000 fewer Invisalign case shipments and $30-35 million less revenues for Invisalign and iTero products sold in China. Net revenues are projected at $615-630 million (indicating 12-15% growth from a year ago). Invisalign case shipments are anticipated in the range of 396-406 thousand (indicating 13-16% growth from a year ago). Adjusted earnings per share (EPS) are projected at $1.19-$1.28 whereas GAAP EPS is likely to be $18.65-$18.74.

GAAP operating margin for the quarter is estimated in the band of 15.4-16.5% whereas non-GAAP estimates are 19.5-20.5%.

The Estimate Picture

The Zacks Consensus Estimate for first-quarter 2020 revenues is pegged at $587.7 million, indicating an improvement of 7.1% from the year-ago figure. The same for earnings per share is pinned at $1.07, suggesting growth of 20.2%.

What Our Model Suggests

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has good chances of beating estimates. However, this is not the case here as you can see:

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

Earnings ESP: Align Technology has an Earnings ESP of +3.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

Exact Sciences Corporation EXAS currently carries a Zacks Rank of 2 and has an Earnings ESP of +26.79%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aphria Inc. APHA, carrying a Zacks Rank of 2 at present, has an Earnings ESP of +35.71%.

DexCom, Inc. DXCM is a Zacks #2 Ranked stock with an Earnings ESP of +143.90%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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