Alignment technologyALGN’s business is currently affected by the decline in patient traffic due to the pandemic and the increase in appointment cancellations. Escalating spending and fierce competition are raising concerns about the stock. Align Technology currently carries a Zacks rank #4 (sell).
Align Technology has underperformed its industry over the past year. The stock lost 59.3% compared to the industry’s 9.4% decline.
Align Technology’s first-quarter earnings and revenue fell short of Zacks’ consensus estimate. The decline in EPS year over year does not bode well. The contraction of the two margins is worrying. During the first quarter, Align Technology recorded a 10.7% year-over-year increase in selling, general and administrative expenses and a 31.7% increase in research and development expenses. These growing expenses led to a 484 basis point contraction in operating margin, which put pressure on the bottom line.
During the first quarter, clear aligners revenue decreased 0.7% on a sequential basis due to lower Invisalign case volumes. Americas case volumes decreased 4.3% sequentially due to the impact of waves of COVID-19 in North America and Latin America, which led to customer staffing shortages and closures practices, as well as a drop in patient traffic and an increase in appointment cancellations. International case volumes were down 6.1% sequentially, due to the impact of COVID-19 restrictions and lockdowns in China, the ongoing military conflict in Ukraine, inflationary pressures and other headwinds macroeconomic opposites.
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In addition, Align Technology faces significant competition from traditional orthodontic appliances (or wires and brackets) players such as 3M’s Unitek, Danaher Corporation’s Sybron Dental Specialties and Dentsply International. The company also competes with products similar to Invisalign Technology, such as products from Ormco Orthodontics, a division of Sybron Dental Specialties.
Additionally, during the first quarter, Align Technology’s clear aligner revenues were adversely impacted by foreign exchange by nearly $24 million, or nearly 3.2 points on an annual basis. The company, in its first-quarter earnings call, noted that unfavorable foreign exchange rates negatively impacted revenue, margins and EPS, as it does nearly half of its business outside of the states. -United.
On a positive note, Align Technology delivered robust revenue growth in the first quarter of 2022 despite a challenging business environment. Revenue was driven by strong performances in the Clear Aligner and Imaging Systems & CAD/CAM Services segments. The increase in Invisalign case shipments in the reported quarter looks impressive. In the teen segment, 175,000 teens started treatment with Invisalign aligners, indicating a 6% year-over-year increase. For the first quarter, Dental Service Organization (DSO) practices grew faster than non-DSO practices, with increased usage led by Heartland and Smile Doctors.
The company’s systems and services revenue posted impressive first-quarter revenue on the back of strong scanner and service shipments. The total number of intraoral digital scans worldwide submitted to start an Invisalign case increased to 87.1% on a yearly basis. The increasing market adoption of iTero Element 5D Plus imaging systems looks promising.
Additionally, the company’s focus on expanding its global operations, both in existing and emerging international markets, and increasing orthodontic adoption and use of Invisalign treatment, particularly in adolescents, arouse optimism.
During the first quarter, the company continued its efforts to educate consumers about the Invisalign system. The company continued to build on its successful “Invis is” multimedia campaign across the Americas, EMEA and APAC. The company has also built on its successful “Invis is a powerful thing” campaign to expand its business with young adults across the Americas, EMEA and APAC.
Additionally, Align Technology has launched a pilot project in the UK to reach teenagers with special campaigns. The company has also increased its investments in Australia to expand its reach using social media platforms like TikTok, Meta and YouTube. These consumer marketing initiatives are expected to expand the company’s customer base globally.
A few higher ranked stocks in the broader medical field are Alkermes plc ALKS, AMN Healthcare Services, Inc. AMN and Medpace Holdings, Inc. MEDP.
Alkermes has an estimated long-term growth rate of 25.1%. Alkermes’ earnings have exceeded estimates in the past four quarters, with the average surprise being 350.5%. He currently carries a Zacks Rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.
Alkermes has outperformed the industry over the past year. ALKS gained 11.1% compared to the industry’s decline of 44.7% during the said period.
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company has beat earnings estimates in the past four quarters, delivering an average 15.6% surprise. He currently wears a Zacks Rank #2 (Buy).
AMN Healthcare has outperformed its industry over the past year. AMN gained 5.1% against a decline of 66.5% for the industry.
Medpace has a historic growth rate of 27.3%. Medpace’s earnings have exceeded estimates for the past four quarters, with the average surprise being 17.1%. He currently has a No. 2 Zacks rank.
Medpace has outperformed its industry over the past year. The MEDP was down 22.5% compared to the industry’s 66.5% drop.
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