For Immediate Release
Chicago, IL – August 04, 2017 – Zacks Equity Research highlights Align Technology (NASDAQ:ALGN– Free Report) as the Bull of the Day Acacia Research (NASDAQ:ACTG– Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Apple Inc. (NASDAQ:AAPL – Free Report), Amazon (NASDAQ:AMZN – Free Report) and Alphabet (NASDAQ:GOOGL – Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
In early May I wrote "Align Technology (NASDAQ:ALGN – Free Report) is one of the strongest medical technology success stories of the past year, with 27.8% sales growth in 2016 and an expected 25%+ top line ramp in 2017."
That story is now being upgraded after another strong quarterly report from the maker of the revolutionary Invisalign "teeth straighteners."
On July 27, Align delivered a nearly 4% revenue beat and a 16% EPS beat. Q2 revenue increased 32.3% year-over-year and 15% sequentially to $356.5 million.
Invisalign case shipments for North America and international were up 27.6% and 37.4% y-o-y, respectively.
Sales Growth is Clearly Aligned with Global Trends
This kind of growth is what made me buy ALGN for my Healthcare Innovators portfolio in early May.
In 1999, Align Technology pioneered the invisible orthodontics market with the introduction of the Invisalign system and by 2001 had manufactured one million unique clear aligners.
The company is well-established as the leader among US dental professionals for alternatives to traditional braces. So it's the international growth that has me and other investors so excited.
As the emerging middle classes of China and India are exposed to Invisalign solutions, that 30%+ sales growth is expected to continue.
Clear Guidance for Straighter Teeth
Looking ahead, the company anticipates Q3 revenue in the range of $355 million to $360 million, above the analyst consensus last week of $341 million.
Align sees Q3 Invisalign case shipments in the range of 231 thousand to 234 thousand.
The company also projects Q3 EPS in the range of $0.78 to $0.81, about "in line" with consensus.
That EPS guidance is probably another "under promise" effort that the company will easily beat given that big boost in sales guidance.
Analysts Raise Estimates and Price Targets
Top line sales projections for this year and next are now up to $1.4 billion and $1.69 billion, representing 29.3% and 21% annual growth, respectively.
Bottom line EPS forecasts for this year and next moved up to $3.40 and $4.12, representing 41% and 21% annual growth, respectively.
It looks like the analysts were surprised once again by the strong growth trajectory of Align products. BofA/Merrill analysts were so caught off-guard that they had to upgrade ALGN shares from Neutral to Buy.
BofA/Merrill analyst Steven Valiquette also raised their price target to $193 from $175. The analyst believes the Invisalign growth story is in the early innings as Align has a first-mover advantage that is poised to increase market share.
ALGN has consistently been a Zacks #1 Strong Buy since it traded below $60 in 2015. As long as Align keeps delivering that international growth, I'm certain I will be revisiting this story every quarter.
Disclosure: I own ALGN shares for the Zacks Healthcare Innovators portfolio.
Acacia Research (NASDAQ:ACTG – Free Report) has consistently been a Zacks #4 Rank (Sell) or #5 Rank (Strong Sell) for most of the past four years. I have chosen the name for Bear of the Day numerous times in this period to warn investors that their money was better off somewhere else.
In January of 2016, I wrote "The stock has fallen from $30 to new 7-year lows this month under $4." And the driving theme of falling shares was consistent quarter after quarter: analysts were forced to lower EPS estimates as the fundamentals deteriorated.
After a 2016 earnings recovery where shares climbed back above $7.50, they are making new lows under $4 this week, and back to the Zacks Rank cellar.
Is There Opportunity Now?
Here's what I wrote on May 26 when I featured Acacia as the Bear of the Day...
Not only is the company poised to deliver a big double-digit earnings decline from last year's $0.45 profit, but the 2017 full-year consensus has declined in the past 30 days from $0.19 to $0.15.
Part of the problem too is that so few analysts are even providing estimates for this company anymore. In fact, 2018 estimates have only recently been established and by only a single analyst who is calling for a rise in profitability to $0.28 on the year.
This low visibility is reflected in the company's last earnings "surprise" which was negative and sizable. ACTG delivered a loss of 13-cents when the consensus expectation was a profit of 1-cent.
(end of May 26 excerpt)
Guess what? The earnings decline has gotten worse. After another big earnings miss, the 2017 EPS estimate has fallen to -$0.05 this week, projecting -111% annual "growth."
And full-year revenue estimates have dropped to $75 million, for a decline of over -50% annually.
A Business Model In Decline?
Acacia Research Corporation, through its subsidiaries, develops, acquires, and licenses patented technologies. It assists patent owners with the prosecution and development of their patent portfolios, protection of their patented inventions from unauthorized use, generation of licensing revenue from users of their patented technologies and enforcement against unauthorized users of their patented technologies.
For years, the fluctuation in their earnings was blamed on the nature of the business model where patent protection fees and litigation wins and costs were so variable. But the overall trend has still been one way: down.
For these reasons, ACTG has been a terrific short position for several years. When the Zacks Rank locks on to a consistent earnings decliner, the shorts don't let go.
So, until this earnings evaporation stops and reverses, it's probably best to keep this portfolio of patents out of yours.
Apple: Not Just a Hardware Company Anymore
Apple (NASDAQ:AAPL – Free Report) has been talking up its services prospects over the past year or so, and the business does look like it's got legs.
Not just as an app eco system that supports and feeds its bigger hardware business, serving as the glue that keeps users deeply engaged, but also as a legit business in its own right. In fact, it seems to be the other way round now, with the installed base of a billion-plus devices driving App Store sales, Apple Music subscriptions, Apple Pay, Apple Care, iCloud storage and whatnot.
Apple doesn’t want to talk about individual contributions yet, but has said that total paid subscriptions across its service offerings jumped 20 million in the last quarter to 185 million.
At 27 million (according to Apple in June), Music subscriptions are still a small part. But despite the growing competition from Spotify, Amazon (NASDAQ:AMZN – Free Report) and others, Apple can potentially sell the service to more than a billion customers today.
Apple Pay, the wallet that allows you to pay in-store, in-app and on the web, also has great potential. According to a March 2017 survey by pymnts.com, up to 24% of mobile phone users have used Apple Pay, with a similar percentage saying they didn’t know how it works and around 39% saying they use it when they remember to use it. An increasing number of people find it easier and faster to use than swiping a card.
According to a study by Juniper Research in April, Apple Pay will nearly double its user base to 86 million this year from 45 million in 2016. New locations (Apple added Italy in May and will have UAE, Denmark, Finland and Sweden operational by year-end. Total signups from Apple Pay, Samsung Pay and Android Pay will be 150 million meaning Apple’s share will be about 57%.
iOS 11 will also help because with that will come Apple Pay peer-to peer payment in the U.S. Most of the revenue currently comes from international markets, so increased penetration in the U.S. also offers growth opportunity.
But the crowning glory and the main driver of the 22% growth in Apple’s services business is the App Store. Management said that according to App Annie’s latest report, it remains the preferred destination for customer purchases, generating twice the revenue of Alphabet (NASDAQ:GOOGL – Free Report)-owned Google Play (Google also has an ad-supported version, so this may not be the best, apples-to-apples comparison).
The growth in Services is a really big deal for Apple, because it will mean goodbye to the seasonal fluctuations that are a part of a hardware-focused business, especially when the concerned hardware make good holiday gifts. Or at least, the seasonal impact will be reduced by the predictability of the services business because it typically grows over time as customers use more and more services.
Apple shares carry a Zacks Rank #3 (Hold), but you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
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