Here's Why You Should Buy SmileDirectClub (SDC) Stock Now
SmileDirectClub, Inc.’s SDC shares are likely to gain in the coming quarters, backed by impressive strategic partnerships. The company’s oral care products are now available at more than 12,500 retail stores nationwide, including Walmart, CVS and Walgreens. SDC’s long-term target looks promising. Key transformative innovations hold the potential to drive growth.
However, a tough competitive space and continued operating losses are concerning for SDC.
In the past year, this Zacks Rank #2 (Buy) stock has lost 33.6% against 16.5% growth of the industry and a 10.3% rise of the S&P 500 composite.
The renowned oral care company has a market capitalization of $437.2 million. SDC projects a long-term estimated earnings growth rate of 20.3%, ahead of the industry’s expected growth rate of 11.6%. SmileDirectClub delivered an average negative earnings surprise of 0.81% in the trailing four quarters.
Let’s delve deeper.
Factors at Play
Strategic Alliances Adding Value: SDC’s retail partnerships have been aimed at serving a highly efficient lead source and brand-building opportunity.
In the first quarter, the company introduced sales specialists in targeted partner network practices to better educate customers about the differences between its two service offerings — CarePlus and traditional virtual care. Based on these insights, the firm developed a dual journey offering, which educates and allows customers with bookings at CarePlus partner network practices the option to choose between CarePlus and virtual care, regardless of the initial appointment type book.
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Innovations Driving Growth: In May 2023, SmileDirectClub launched its innovative SmileMaker Platform in the United States, expanding its patented technology to its largest market. The technology is an industry first, upgrading current 2D remote scanning options and introducing real-time AI to capture a 3D view of teeth.
In February, SDC availed its new premium aligner treatment, CarePlus, at select partner network dentist locations. The company also expanded its innovative suite of premium, affordable oral care products with the addition of a Sensitivity-Free Whitening Kit.
Long-Term Growth Targets Appear Encouraging: SmileDirectClub’s long-term strategy includes achieving the average revenue growth target of 20-30% per year and adjusted EBITDA margins of 25-30% for the next five years. This implies a long-term target on a sequential basis of 5-7% each quarter. Per the company, this long-term revenue target reflects the efforts to capture market share, while improving customer experience.
For 2023, SmileDirectClub expects total core business revenues of $400-$450 million. SDC’s revenues in the first quarter of 2023 were well ahead of estimates.
Downsides
Operating Losses Trend Continues: In the first quarter, the company posted a year-over-year decline in revenues due to persistent macroeconomic headwinds, driven by high inflation that impacted its customer base. Earnings for the quarter missed estimates. Meanwhile, the operating loss trend continued, with the company posting a narrower loss in the first quarter, than the year-ago adjusted figure.
A Competitive Landscape Poses Challenge: SmileDirectClub competes with a handful of smaller companies that collectively have a limited market share in the clear aligner industry, including Candid Co., Byte (Dentsply) and SnapCorrect. Following the introduction of the company’s collaborative and wholesale partner network, it faces competition from more well-established competitors in the traditional orthodontic industry, which requires in-person visits, such as Align Technology, Inc.
Estimate Trend
The Zacks Consensus Estimate for SmileDirectClub’s 2023 loss per share has been unchanged at 42 cents in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $433.9 million. This suggests a 7.8% drop from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are Zimmer Biomet ZBH, Penumbra PEN and Intuitive Surgical ISRG.
Zimmer Biomet has an earnings yield of 5.64% against the industry’s -3.72%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and was break-even in one, the average surprise being 4.47%. Its shares have gained 11.1% against the industry’s 1.4% decline in the past year.
ZBH sports a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 83.7% against the industry’s 0.6% decline over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 94.24%.
Intuitive Surgical, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 15.7%, almost in line with the industry. Shares of ISRG have risen 29.6% against the industry’s 0.6% growth over the past year.
ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average surprise being 4.19%.
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Intuitive Surgical, Inc. (ISRG) : Free Stock Analysis Report
Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
Penumbra, Inc. (PEN) : Free Stock Analysis Report
SmileDirectClub, Inc. (SDC) : Free Stock Analysis Report
