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Can Overall Growth Fuel Align Technology's (ALGN) Q4 Earnings?

Zacks Equity Research

Align Technology, Inc. ALGN is set to report fourth-quarter 2018 results on Jan 29, after market close.

In the last reported quarter, the company delivered a positive earnings surprise of 4.2%. Also, it has an average four-quarter positive surprise of 16.7%.

Let’s take a look at how things are shaping up prior to this announcement.

Invisalign System — A Key Catalyst

Align Technology is expected to gain from continued adoption of Invisalign Technology in the fourth quarter of 2018. The company estimates Invisalign case shipments in the band of 330,000-335,000, up 29-31% from a year ago. 

Meanwhile, Align Technology reached the milestone of treating over 6 million patients globally, with the Invisalign clear aligner system in December 2018.

Also, in October 2018, the company received the FDA approval for commercially marketing Invisalign treatment with mandibular advancement for Class II correction in growing tween and teen patients in the United States. Per management, class II malocclusion represents around 45% of the 9 million teen case starts globally each year.

This apart, the company had announced the addition of Invisalign First clear aligners for treatment of younger patients with early mixed dentition in May 2018. Also, Align Technology initiated the commercial launch of the offering for Invisalign-trained doctors in the United States, Canada, Australia, New Zealand, Japan, and the Europe, Middle East and Africa (EMEA) regions in July 2018.

Align Technology, Inc. Price and EPS Surprise

Align Technology, Inc. Price and EPS Surprise | Align Technology, Inc. Quote

At the same time, the company expanded its Invisalign clear aligner range by launching Vivera Retainers with Precision Bite Ramps. Notably, the product has been made available to Invisalign-trained providers in the Asia Pacific, North America and EMEA regions. Further, the company has been focusing on driving Invisalign utilization among orthodontists.

These developments should all contribute strongly to the company’s top-line in the to-be-reported quarter.

Strong Scanner and Service Business

Align Technology has been raking in solid revenues from the Scanner and Service business over the past few quarters. Moreover, the company has been seeing increased adoption of iTero scanners for Invisalign case submissions instead of PVS impressions, especially in North America. Management expects this trend to reflect in the company’s fourth-quarter results.

In this quarter, Align Technology announced several updates to its iTero Element family of Intraoral scanner (iTero Element, Element 2 and Element Flex), expanding its usage in restorative and dental practice workflow.

Notably, Align Technology had expanded its iTero Element portfolio with the launch of iTero Element 2 and iTero Element Flex scanners in the United States and the majority of European countries including France, Germany, Italy, Spain and the United Kingdom.

The company is also gaining from the adoption of iTero platform by dental service organizations or DSO partners. Per Align Technology, Heartland Dental plans to install scanners in 90% of supported offices by 2018-end. Moreover, Aspen Dental initiated the rollout of iTero scanners in third-quarter 2018 for the next two quarters.

To commercialize the iTero Element intraoral scanner in China, Align Technology has received approval from the China Food and Drug Administration, which is an added positive.

Thus, we expect a superb show from the Scanner and Service business in the to-be-reported quarter.

Overall, Align Technology projects earnings per share (EPS) of $1.10-$1.15 on revenues of $505-$515 million for fourth-quarter 2018. The Zacks Consensus Estimate for revenues is pegged at $512.03 million, mirroring 21.5% improvement from the year-ago figure.

What Our Quantitative Model Suggests

Per the proven Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Align Technology has a Zacks Rank #3 and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult.

The Zacks Consensus Estimate for fourth-quarter earnings is pinned at $1.16, reflecting a 2.5% decline on a year-over-year basis.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

PerkinElmer PKI has an Earnings ESP of +0.77% and a Zacks Rank #3.

Illumina, Inc. ILMN has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DexCom DXCM has an Earnings ESP of +8.81% and a Zacks Rank #2.

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