Here's Why You Should Hold on to Align Technology (ALGN) Now
Align Technology, Inc. ALGN has been gaining from the growing market adoption of the iTero Element 5D Plus imaging system. Impressive international performance across geographies also buoys optimism. However, escalating expenses and stiff competition raise apprehension over the company.
Over the past year, this Zacks Rank #3 (Hold) stock has declined 15.9% against the 7.6% growth of the industry and 14.9% rise of the S&P 500 composite.
The renowned global medical device company has a market capitalization of $34.19 billion. The company’s earnings have surpassed estimates in the trailing four quarters, delivering an average surprise of 16.51%. Over the past five years, the company registered earnings growth of 28.7%, way ahead of the industry’s 12.8% rise.
Let’s delve deeper.
Key Growth Drivers
iTero in Focus: Align Technology has been focusing on expanding workflow options of its leading iTero scanners. Cumulatively, 50 million orthodontic scans and 10.3 million restorative scans have been performed with iTero scanners by the fourth quarter-end. For the fourth quarter, Align Technology’s revenues reflected continued robust growth and momentum from iTero scanner services revenues. The company also saw continued growth in the iTero scanner installed base during the quarter, with strong adoption of the iTero Element 5D Plus imaging system. During the quarter, the iTero Element 5D Plus imaging system continued to gain traction across all regions, with the most recent launch in China.
International Focus to Drive Growth: Align Technology has undertaken several strategies to improve the adoption of Invisalign Technology that includes product/technology development, extending clinical effectiveness, an extension of the Invisalign Technology brand and driving international growth.
For the international business, Invisalign case volumes were up 11.5% on a year-over-year basis. In EMEA, Invisalign case volumes were up 14.9% year over year, with strong broad-based growth across all markets. This growth was led by Italy and Iberia coupled with continued growth in the company’s expanded markets in Turkey, Russia, CIS and Benelux.
Invisalign Portfolio Expansion: Align Technology’s Invisalign portfolio offers orthodontic treatment to straighten teeth without metal braces.
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In its fourth-quarter earnings call, the company noted new Invisalign systems innovations for the Align Digital Platform. These latest innovations include ClinCheck Live Update for 3D controls, the Invisalign Practice App, Invisalign Personalized Plan, or IPP, and the Invisalign Smile Architect. These innovations are intended to improve Invisalign treatment planning quality, efficiency and scale as well as doctor-patient engagement and treatment outcomes.
Downsides
Escalating Expenses: During the fourth quarter, Align Technology witnessed a 29.5% year-over-year increase in selling, general and administrative expenses and a 48.3% rise in research and development expenses. These escalating expenses resulted in a 412–basis point contraction in operation margin, building pressure on the bottom line.
Competitive Landscape: Align Technology faces significant competition from traditional orthodontic appliances (or wires and brackets) players such as 3M’s Unitek, Danaher Corporation’s Sybron Dental Specialties and Dentsply International. The company also competes with products similar to Invisalign Technology, such as the products from Ormco Orthodontics, a division of Sybron Dental Specialties.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Align Technology’s 2022 earnings has moved down 4.7% to $12.75.
The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $4.78 billion, suggesting a 20.9% surge from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are McKesson Corporation MCK, AMN Healthcare Services, Inc. AMN and Bio-Rad Laboratories, Inc. BIO.
McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.7% compared with the industry’s 4.7% growth in the past year.
AMN Healthcare, flaunting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 23.8% versus the 62% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.
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