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Here's Why You Should Hold on to Align Technology (ALGN) Now

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·5 min read
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Align Technology, Inc. ALGN is gaining from strength in its Invisalign portfolio. The company exited the third quarter of fiscal 2021 with better-than-expected results. The recent launch of the Invisalign Whitening Pen buoys optimism. Robust uptake of the company’s iTero scanners is an added positive. However, escalating expenses and COVID-led woes raise apprehension.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 29.3% compared with 11.3% growth of the industry and 24.4% rise of the S&P 500 composite.

The renowned global medical device company has a market capitalization of $52.57 billion. Its third-quarter 2021 earnings surpassed the Zacks Consensus Estimate by 13.9%.

Over the past five years, the company registered earnings growth of 60.1%, way ahead of the industry’s 11.7% rise and the S&P 500’s 2.8% increase. The long-term expected growth rate of 21.7% also exceeds the industry’s growth projection of 12.6% and the S&P 500’s estimated 11.6% rise.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let’s delve deeper.

Key Drivers

Q3 Upsides: Align Technology exited the third quarter of fiscal 2021 with better-than-expected earnings and revenues. The company reported solid revenue growth in the quarter under review, reflecting continued adoption of iTero scanners and increased utilization of Invisalign Clear Aligners in the Americas and APAC regions as well as growth in the Teen segment. Impressive international performance across geographies and increased shipment volumes buoy optimism on the stock. The company has raised its full-year 2021 outlook, which is indicative of the continuation of this bullish trend.

Invisalign Portfolio Expansion: Align Technology’s Invisalign portfolio offers orthodontic treatment to straighten teeth without metal braces. During the third-quarter earnings call, the company confirmed that the Invisalign adoption by teens or younger patients jumped 13.8% sequentially and 26.6% year over year. The company also shipped a record 655,100 Invisalign cases in the reported quarter, representing an increase of 32.1% year over year. Align Technology continues to witness robust adoption of the Invisalign Go product among GPs. In the reported quarter, the company launched the Invisalign Whitening Pen through e-commerce channels in the United States. Other notable products by the company include the Invisalign G8 with SmartForce Aligner Activation, ClinCheck Pro 6.0, the Steraligner aligner cleaning system and the Invisalign Stickables.

iTero in Focus: We are upbeat about Align Technology’s leading iTero scanners, which have been utilized to perform 44.9 million orthodontic scans and 9.3 million restorative scans cumulatively by the third quarter-end. During the reported quarter, the company’s iTero Element 5D Plus Imaging System continued to gain traction across all regions, with the most recent launch in Japan. The company also launched iTero Element Plus Series in Korea in the quarter. Further, Align Technology continued to benefit from exocad CAD/CAM products and services revenues in the quarter under review.

Downsides

Escalating Expenses: During the third quarter, Align Technology witnessed a 37% year-over-year increase in selling, general and administrative expenses and a 47.3% rise in research and development expenses. This substantial increase in operating expenses is building pressure on the company’s bottom line.

COVID-Led Headwinds: On a sequential basis, Align Technology’s Clear Aligner revenues were down in the third quarter, especially in EMEA, as patient visits and practices were impacted due to the resurgence of COVID-19 cases and restrictions. Also, international shipments were down sequentially 4.3% in the reported quarter, primarily due to greater seasonality and COVID-related shutdowns in APAC markets.

Currency Headwinds: The challenges arising from unfavorable foreign currency translation have affected Align Technology’s financials over the past few quarters. Per management, significant currency fluctuations could have a material impact on revenues, cost of sales and operational results.

Estimate Trend

Over the past 60 days, the Zacks Consensus Estimate for Align Technology’s earnings has moved 1% to $11.10.

The Zacks Consensus Estimate for fourth-quarter 2021 revenues is pegged at $1.02 billion, suggesting a 22.2% surge from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are NextGen Healthcare, Inc. NXGN, McKesson Corporation MCK and HealthEquity, Inc. HQY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NextGen has a long-term earnings growth rate of 8.5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 16%.

NextGen has outperformed its industry over the past year. NXGN has declined 7.1% versus the industry’s 42.9% fall.

McKesson has a long-term earnings growth rate of 8.9%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.9%, on average.

McKesson has outperformed its industry over the past year. MCK has gained 25.7% versus the 11.9% industry rise.

HealthEquity has a long-term earnings growth rate of 13.4%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 9.8%.

HealthEquity has outperformed its industry over the past year. HQY has declined 34.2% versus the industry’s 54.5% fall.


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