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What's in Store for Align Technology (ALGN) in Q1 Earnings?

Zacks Equity Research

Align Technology, Inc. ALGN is set to report first-quarter 2019 results on Apr 24, after the closing bell.

In the last reported quarter, the company delivered a positive earnings surprise of 3.5%. Further, it has an average four-quarter positive surprise of 11.6%.

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 first quarter of 2019. The company estimates Invisalign case shipments in the band of 340,000-345,000, up 25-27% from the year-ago quarter. This projected improvement is likely to contribute substantially to the company’s top line in the to-be-reported quarter.

Invisalign portfolio expansion, anticipated higher revenues at the Clear Aligner segment on the back of sustained Invisalign case volume growth across customer channels and geographies, and estimated growth in the teen segment, are likely to aid the company in delivering strong results in the to-be-reported quarter. Notably, the company estimates Invisalign volume to be in mid-range of its long-term model target of 20% to 30% for the full-year 2019. Additionally, gross margin and operating margin are expected to improve throughout 2019.

However, it is important to note here that the arbitration decision with SDC Entities requires Align Technology to close Invisalign Stores by Apr 3, 2019. This is expected to result in a material charge in the first quarter. Nevertheless, the store closures are likely to have minimal impact on the company’s revenues.

Strong Scanner and Service Business

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

In the quarter under review, the company introduced the iTero Element 5D Imaging system. It offers a comprehensive approach to clinical application, workflows and user experience, while broadening the iTero portfolio.

Moreover, the company entered into a distribution agreement with Benco Dental during the first quarter. The deal will improve the iTero Element portfolio of intraoral scanning technology.

The company is also gaining from the adoption of iTero platform by dental service organizations or DSO partners. As announced previously, Aspen Dental’s decision to initiate the rollout of iTero scanners in third-quarter 2018 will continue throughout the first quarter. Consequently, positive contribution from this rollout is anticipated to positively impact the results in the to-be-reported quarter.

Overall, Align Technology projects earnings per share (EPS) of 78-84 cents on revenues of $525-$535 million for first-quarter 2019. The Zacks Consensus Estimate for revenues is pegged at $530.19 million, indicating an improvement of 21.4% from the year-ago reported figure.

Align Technology, Inc. Price and EPS Surprise


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

However, the company expects to incur operating expenses in the range of $290 million to $294 million in the first quarter due to sales force expansion and higher legal expenses. The operating margin in this time period is estimated to be in the band of 15.1-16.1%.

Further, continuation of the company’s operational expansion efforts can result in capital expenditure in the first quarter in the range of around $60 million to $65 million. Depreciation and amortization is estimated to range between $19 million and $20 million.

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 first-quarter earnings is pinned at 83 cents per share, reflecting a decline of 29.1% on a year-over-year basis.

Stocks Worth a Look

Here are some stocks from the broader medical space worth considering from the same space as these have the right combination of elements to beat on earnings this time around.

Teleflex Incorporated TFX has an Earnings ESP of +0.96% and a Zacks Rank #3.

Laboratory Corporation of America Holdings LH has an Earnings ESP of +0.36% and a Zacks Rank #3.

Cardinal Health, Inc. CAH has an Earnings ESP of +1.13% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here . 

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