Here's Why Investors Should Retain SmileDirectClub (SDC) Now
SmileDirectClub, Inc. SDC is well poised for growth in coming quarters, backed by continued strategic partnerships. The company’s continued expansion in the teledentistry space is encouraging. The company ended the third quarter of 2022 with better-than-expected revenues, instilling optimism. However, tough competition and operating loss raise apprehension.
In the past year, the Zacks Rank #3 (Hold) stock has declined 80.4% against a 6.3% fall of the industry and a 18% drop of the S&P 500.
The renowned oral care company has a market capitalization of $159,3 million. The company projects 17.9% growth for the next five years, ahead of the industry’s projected growth rate of 9.7%.
Factors At Play
Q3 Upsides: SmileDirectClub exited the third quarter of 2022 with better-than-expected earnings and revenues. While the third-quarter revenue was impacted by the continued macro headwinds affecting SmileDirectClub customers, the company’s restructuring plan implemented in January is driving meaningful improvements in its cost structure and free cash flow. Despite a $31 million year-over-year decline in revenues from the third quarter of 2021, EBITDA improved by $24 million and free cash flow rose by $29 million in the reported quarter.
Expansion in Teledentistry Space: Going by a June 2021 Insight Partners report, the Teledentistry market (which was valued at $667.13 million in 2019) is projected to reach $2.61 billion by 2027 at a CAGR of 17.1% during 2019–2027. The company currently provides a doctor-directed digital end-to-end experience in teledentistry, with 24/7 access to orthodontic care and the back end of a lifetime smile guarantee. The company continues to see favorable industry dynamics with broader acceptance of telehealth and specifically, teledentistry.
Image Source: Zacks Investment Research
Strategic Alliances Add Growth: In terms of the retail partnership, SmileDirectClub’s oral care products are now available at over 12,500 retail stores nationwide, including Walmart, CVS, Walgreens and Sam's Club. These partnerships serve as a highly efficient lead source and brand-building opportunity.
In September 2022, the company announced its membership with the Dental Trade Alliance, joining dozens of the most elite suppliers and service providers in the oral health industry. SmileDirectClub will be the organization’s only member that offers clear aligners exclusively.
In February 2022, SmileDirectClub entered a partnership with Carestream Dental to utilize its cutting-edge intraoral scanners throughout the company’s global SmileShop footprint and Partner Network locations. The deal expands SmileDirectClub’s use of the innovative carestream dental CS 3700 intraoral scanner across its smileshop and partner network locations.
Downsides
Operating Loss Trend Continues: SmileDirectClub’s third-quarter marketing and selling expenses contracted 39.5%. General and administrative expenses were down 11.9% year over year. The company incurred an adjusted operating loss of $58.9 million in the quarter, narrower than the year-ago adjusted operating loss of $83.6 million.
Tough Competitive Landscape: SmileDirectClub competes with a handful of smaller companies that collectively have limited market share in the clear aligner industry, including Candid Co., Byte (Dentsply), and SnapCorrect. With the introduction of the company’s collaborative and wholesale partner network, it also faces competition from more well-established competitors in the traditional orthodontic industry, which requires in-person visits, such as Align Technology, Inc.
Estimate Trend
Over the past 30 days, the Zacks Consensus Estimate for SmileDirectClub’s 2022 loss has been constant at 73 cents.
The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $484.1 million, suggesting a 24.1% fall from the 2021 figure.
Other Key Picks
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Boston Scientific Corporation BSX and Merit Medical Systems, Inc. MMSI.
AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has lost 10.6% compared with the industry’s 30.3% decline in the past year.
Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.3%. BSX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average beat being 1.9%.
Boston Scientific has gained 6.8% against the industry’s 42.6% decline in the past year.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.
Merit Medical has gained 13.7% against the industry’s 8.7% decline in the past year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Boston Scientific Corporation (BSX) : Free Stock Analysis Report
Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report
AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report
SmileDirectClub, Inc. (SDC) : Free Stock Analysis Report
