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Better Buy: Align Technology, Inc. vs. Danaher Corporation

Keith Speights, The Motley Fool

Ask Align Technology, Inc. (NASDAQ: ALGN) who its competition is, and the first name mentioned will be Danaher Corporation (NYSE: DHR). Align has pretty much enjoyed a monopoly for its Invisalign clear aligners in the past, but the company fully expects that Danaher (and others) will try to take market share away.

Investors appear to be putting their money on Align winning the battle. The stock is up more than 70% so far in 2018, while Danaher stock is up around 16%. But which of these stocks is the better pick going forward? Here's how Align Technology and Danaher stack up against each other.

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Image source: Getty Images.

The case for Align Technology 

I think one number perhaps highlights the strongest argument why investors should consider Align Technology. That number is 12%, and it represents the total market share that Align has right now of the 6 million orthodontic cases for which Invisalign can treat. Align has an enormous opportunity for growth, especially in the teen market, where its market share is less than 5%.

Align is making headway in increasing its market share. In July, the company reported that its Q2 revenue soared nearly 38% year over year to $490.3 million. Shipments of its Invisalign clear aligners jumped 30.5% over the prior-year period. 

One way the company is growing is by increased promotional efforts. Align is also expanding into more international markets. For example, it recently opened its first Invisalign treatment planning facility in Europe. Emerging markets present another great opportunity for growth.

Invisalign isn't Align's only product. The company also markets intraoral scanners, which are used to create 3D models of patients' teeth. These 3D models can then be used to develop treatment plans for Align's clear aligners. The company's scanner business is firing on all cylinders. Align recently shipped its first iTero intraoral scanners to China.

While Align has a nice runway for growth in its current addressable market, the company also plans to expand that market. Align continues to develop new products to treat more severe cases of malocclusion (the misalignment of teeth), which represent another 4 million orthodontic case starts each year. 

The case for Danaher

I don't think there is just one number that can summarize the case for investing in Danaher. The company is too big with too many areas of focus for that. My colleague Lee Samaha, though, probably articulated the best argument for buying Danaher stock recently when he wrote that it was "a safe stock with growth prospects."

Lee's premise that Danaher is a relatively safe stock to buy stems in large part from the company's focus on businesses that aren't very susceptible to economic downturns. Danaher's biggest business unit is its diagnostics segment, followed closely behind by its life sciences unit, both of which generate annual sales approaching $6 billion. The company's environmental and applied solutions segment makes around $4 billion annually. Its dental business, which competes with Align Technology, is actually Danaher's smallest unit, with annual sales of close to $3 billion.

The great news for risk-averse investors is that most of Danaher's businesses fare pretty well even during recessions. That's especially true for the company's diagnostics, life sciences, and environmental businesses, which only experienced a 1% drop in revenue in 2009 -- the toughest year of the Great Recession. 

What about Danaher's growth prospects? They look pretty good, too. The consensus among Wall Street analysts is that Danaher will achieve average annual earnings growth of 9% over the next five years. In 2017, Danaher's recurring revenue from consumables generated roughly 65% of total revenue. That's a good base on which to build additional growth. Danaher also hasn't been shy about making strategic acquisitions to drive revenue and earnings higher.

On top of all of this, Danaher offers a modest dividend with a yield of 0.6%. Although the dividend payout has swung up and down somewhat in recent years, Danaher appears to be in a great financial position to not only keep the dividends flowing, but also boost its dividend down the road.  

Better buy

Danaher claims a strong business. Its stock isn't a bad pick at all. However, I like Align Technology better.

I think Align's first-mover advantage in the clear aligner market should enable the company to maintain a huge lead over potential rivals, including Danaher. International markets and the teen market in the U.S. present very good opportunities for Align to continue its sizzling growth. If the company can deliver innovative products that address more serious cases of malocclusion, Align's upward potential is even greater. 

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Keith Speights owns shares of Align Technology. The Motley Fool owns shares of and recommends Align Technology. The Motley Fool has a disclosure policy.