Align Downgraded to Neutral - Analyst Blog

Recently, we downgraded Align Technology (ALGN) to Neutral with a target price of $18.00.

Align manufactures and markets the Invisalign system, a proprietary method for treating malocclusion or misalignment of teeth. The system corrects malocclusion using some nearly invisible and removable appliances that help to gently move the tooth to a desired final position.

During the third quarter, Align reported a 21% year-over-year increase in revenue to $95.9 million (exceeding the company's guidance of $92.0–$95.0 million). While the number of cases shipped increased 17.2% annually to 66,200 ( the low end of the company's guidance of 66,000-68,000), it declined 1.8% sequentially.

While cases shipped to North American Orthodontists and International cases increased sequentially by 0.3% and 1.9%, respectively, cases shipped to North American GP Dentists declined 5.7% due to low dental visits and lower demand for premium procedures. Although cases shipped for Invisalign Express and Invisalign Teen increased 1.9% and 11.4%, respectively, Invisalign Full and Invisalign Assist recorded declines of 4.5% and 1.9%, respectively.

Align expects total revenue and EPS in the range $90.5−$93 million and $0.15−$0.17, respectively. The guidance represents a sequential decline in revenues due to a slower-than-expected growth in North America (particularly for GP dentists) due to summer seasonality.

It was witnessed that the softness persisted in the fall as well, especially among North American GP customers which resulted in the decline in cases shipped. However, the currency movement is expected to have a favorable impact on international revenues.

Another factor responsible for the decline in case shipments was the withdrawal of the case requirement program during the second quarter. This trend is expected to continue in the fourth quarter as well.

Align has undertaken several strategies to further penetrate the malocclusion market. Most of the company's key business metrics improved during the quarter on an annual basis. We are encouraged by the company's performance in the teenage segment, a market which holds immense potential.

Moreover, its focus on the international market, especially China is encouraging. The company faces tough competition from players like Danaher Corporation (DHR) and Dentsply International (XRAY).

While we are confident about the long-term potential of Align, given the near-term challenges, we prefer to remain on the sidelines until further clarity is attained regarding the pick-up in demand. As a result, we downgrade the stock to Neutral.

 
ALIGN TECH INC (ALGN): Free Stock Analysis Report
 
DANAHER CORP (DHR): Free Stock Analysis Report
 
DENTSPLY INTL (XRAY): Free Stock Analysis Report
 
Zacks Investment Research