Align Tech Faces Slowing Growth, Potential Headwinds, Morgan Stanley Says In Downgrade

Orthodontic supplier Align Technology, Inc. ALGN's long-term potential is likely to be overshadowed by slowing growth in the near term and a "demanding" multiple, according to Morgan Stanley.

The Analyst

Analyst Steve Beuchaw downgraded shares of Align Technology from Overweight to Equal-weight and reduced the price target from $300 to $270.

The Thesis

Align Technology's core Invisalign volume has accelerated by over 1,000 basis points to 30-plus-percent since the end of 2016, taking multiples 70 percent higher, Beuchaw said in a Wednesday note.

The company is a long-term attractive opportunity, with "world-class" execution and a 12-million-plus total addressable market in clear aligner orthodontics, the analyst said.

Slowing growth in 2018 could drive a multiple de-rating from Align's current 50-percent premium to its historical relationship with the S&P, Beuchaw said.

Align's headwinds include the following, Beuchaw said: a flattening of U.S. high-end U.S. consumer confidence, the loss of Align's supply arrangement with SmileDirectClub, an uptake of the one-week aligner change-out schedule that is likely to be less incremental, competitive announcements, a mix shift toward non-comprehensive cases and a rising interest rate scenario.

Morgan Stanley lowered its 2020 revenue and earnings per share estimates for Align, citing the potential loss of the SDC supply contract in 2020 and the pushing out of a more automated general practitioner aligner solution to the second half of this year.