Align's (ALGN) New Launches Aid, Macroeconomic Woes Linger
Align Technology’s ALGN robust product line and consistent focus on international markets to drive growth bolster our confidence in the stock. However, we remain concerned about the current economic uncertainty, which continues to cast a negative impact on Align Technology’s dental procedures. The stock carries a Zacks Rank #3 (Hold).
Align Technology is strategically capturing the growing malocclusion market, one of the most prevalent clinical dental conditions in the world. According to Align Technology’s May 2023 data, it is currently affecting approximately 60% to 75% of the global population. Per the company, there are approximately 500 million people globally with malocclusion. However, most of them do not seek orthodontic treatment mainly due to negative perceptions of metal braces, affordability of treatment and accessibility to doctors in certain markets and geographies.
Align Technology is expanding its sales and marketing by reaching new countries and regions, including new areas within Africa and Latin America. By the end of 2022, the company sold directly or through authorized distributors in more than 100 countries. With the opening of its third clear aligner fabrication facility in Wroclaw, Poland, the company now has a manufacturing facility in each of its operating territories — Americas (Mexico), APAC (China) and EMEA (Poland).
The company also performs digital treatment planning and interpretation for restorative cases worldwide, including in Costa Rica, China, Germany, Spain, Poland and Japan, among others. Align Technology has been expanding its business in 2023 through investments in resources, infrastructure and initiatives that help drive growth in Invisalign treatment, intraoral scanners and Exocad CAD/CAM software in existing and new international markets. According to the company, by establishing and expanding its key operational activities in locations closer to customers, it can address local and regional needs in a better way.
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Further, the company’s slew of strategic alliances looks impressive. It has well-established relationships with many dental service organizations, especially in the United States, and is continuously exploring collaborations with others that drive the adoption of digital dentistry.
In 2023, in the Americas, Align Technology focused on reaching young adults as well as teens and their parents through influencer and creator-centric campaigns, partnering with leading smile squad creators, including Marshall Martin, Rally Shaw and Jeremy Lin. Each of these creators shared their personal experiences with Invisalign treatment and why they chose to transform their smile with Invisalign aligners.
Over the past year, shares of ALGN have gained 27.2% compared with an 11.8% rise of the industry.
On the flip side, although Align Technology is gradually coming out of the impact of the two-and-a-half-year-long healthcare crisis, the ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting growth. Deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor costs as well as freight charges and rising interest rates, has put the dental treatment space (which is highly-elective) in a tight spot. Added to this, Align Technology is also concerned about the military conflict between Russia and Ukraine that is likely to continue.
The company noted that while it continues to employ research and development personnel in Russia as well as limited post-sales support and administrative personnel, its total number of employees in Russia was materially reduced in 2022. Align Technology anticipates increasing headwinds from macroeconomic uncertainty and potential supply issues related to the war in the Middle East in the upcoming period.
The company expects fourth-quarter GAAP operating margin to be down sequentially from the third quarter of 2023 due to restructuring, primarily related to severance as the company adjusts headcount for this environment.
Further, foreign exchange is a major headwind for Align Technology due to a considerable percentage of its revenues coming from outside the United States (in 2022, 44% of the company’s consolidated revenues came from international regions).
Through the first nine months of 2023, the strengthening of the U.S. dollar against nearly every other major currency hampered Align Technology’s revenues in the international markets. This was mainly due to the Fed’s 10 consecutive aggressive rate hikes to tackle inflation since March 2022.
Key Picks
Some better-ranked stocks in the broader medical space are Insulet PODD, Haemonetics HAE and DexCom DXCM. While Insulet presently sports a Zacks Rank #1 (Strong Buy), Haemonetics and DexCom carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for Insulet’s 2023 earnings per share have increased from $1.61 to $1.90 in the past 30 days. Shares of the company have decreased 40.9% in the past year compared with the industry’s decline of 7%.
PODD’s earnings surpassed estimates in the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.4%.
Haemonetics’ stock has risen 11.6% in the past year. Earnings estimates for Haemonetics have increased from $3.82 to $3.86 for 2023 and from $4.07 to $4.11 for 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it posted an earnings surprise of 5.3%.
Estimates for DexCom’s 2023 earnings per share have increased from $1.23 to $1.41 in the past 30 days. Shares of the company have fallen 7.8% in the past year compared with the industry’s decline of 7.1%.
DXCM’s earnings surpassed estimates in the trailing four quarters, the average surprise being 36.4%. In the last reported quarter, it delivered an average earnings surprise of 47.1%.
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