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Align Technology ALGN is strategically capturing the growing malocclusion market, where a large portion of the affected population remains untreated. The company’s slew of strategic alliances looks impressive. Additionally, it is expanding its sales and marketing by reaching new countries and regions, including new areas within Africa and Latin America. However, macroeconomic impacts and substantial dependence on the Invisalign system raise concerns about the company’s operations.
In the past year, this Zacks Rank #3 (Hold) stock has plunged 49.1% compared with 3.1% decline of the industry. In contrast, the S&P 500 composite has risen 7.7%.
The renowned medical device company has a market capitalization of $11.66 billion. ALGN projects a long-term estimated earnings growth rate of 10.6% compared with 9.4% growth of the industry. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.5%.
Let’s delve deeper.
Invisalign's Untapped Potential: According to Align Technology’s March 2024 data, malocclusion affects approximately 60% to 75% of the global population, with an estimated 600 million people worldwide having the condition. Despite this, a large portion of them do not seek orthodontic treatment mainly due to negative perceptions of metal braces, affordability of treatment and accessibility to doctors in certain markets and geographies. The company also noticed that almost all of this patient base could be treated with Invisalign Clear Aligner. This represents a significant growth opportunity for Align Technology to increase its share of the existing global market of orthodontic case starts, especially among teens, and expand the market for digital orthodontics, especially among adults.
Despite severe-than-expected seasonality, the Clear Aligner volume of 2.5 million cases in 2024 was up 3.5% over 2023. In the fourth quarter, Clear Aligner volume from dental support organizations (DSO) customers increased sequentially and year over year, reflecting growth across all regions.
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Strategic Alliances: The company has well-established relationships with many DSOs, especially in the United States, and is continuously exploring collaboration with others that drive the adoption of digital dentistry. In the United States, Align Technology is focused on reaching young adults as well as teens and their parents through famous athletes, influencers and fashion designers including Mazz Crosby, OverTime Megan and Kristin Juszczyk. According to the company, these partnerships are creating a compelling brand activation at the Super Bowl.
In the EMEA region, the company has partnered with new influencers to reach consumers across social media platforms, including TikTok and Meta. In Germany, Align Technology launched new testimonial campaigns highlighting the stories of 70 young adults and teens who share why they chose Invisalign treatment and how it impacted their lives. In APAC and EMEA, the company expanded its market via media platforms like TikTok, Meta and YouTube.
Geographic Expansion Continues: By the end of 2023, Align Tech sold directly or through authorized distributors in more than 100 countries. With the opening of its third clear aligner fabrication facility in Wroclaw, Poland, the company now has a manufacturing facility in each of its operating territories — Americas (Mexico), APAC (China) and EMEA (Poland). It also performs digital treatment planning and interpretation for restorative cases worldwide, including in Costa Rica, China, Germany, Spain, Poland and Japan, among others.
Align Technology continues to expand its business through investments in resources, infrastructure and initiatives that help drive growth in Invisalign treatment, intraoral scanners and Exocad CAD/CAM software in existing and new international markets. Internationally, in the fourth quarter, the company reported strong Clear Aligner growth in APAC, especially in China and Japan, EMEA, as well as Latin regions and North America.
Macroeconomic Concerns: The ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting revenues and margins for Align Technology. Deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor costs as well as freight charges and rising interest rates, all have put the dental treatment space (which is highly elective) in a tight spot. In the fourth quarter, Align Technology’s revenues were dented in part due to more pronounced seasonality for Clear Aligners, especially in China, as well as continued weak consumer sentiment and a soft dental market.
Overdependence on Invisalign Technology System: The bulk of Align Technology's net revenues largely depends on the sale of its Invisalign Technology System, primarily Invisalign Technology Full and Invisalign Technology Teen. Therefore, continued and widespread market acceptance of Invisalign Technology by orthodontists, GPs and consumers is critical to its future success. Management fears that if consumers start preferring a competitive product over Invisalign, the company’s operating results will suffer.
The Zacks Consensus Estimate for Align Technology’s 2025 earnings per share (EPS) has remained constant at $9.99 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2025 revenues is pegged at 4.09 billion. This suggests a 2.3% rise from the year-ago reported number.
Some better-ranked stocks in the broader medical space are Veracyte VCYT, Hims & Hers Health HIMS and Boston Scientific BSX.
Veracyte has an earnings yield of 3.6% against the industry’s -3.3% yield. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 515.9%. Its shares have gained 40.1% against the industry’s 7.3% decline in the past year.
VCYT carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hims & Hers Health, carrying a Zacks Rank #2 at present, has an earnings yield of 1.9% against the industry’s -7.6%. Shares of the company have surged 115.6% against the industry’s 10.6% decline. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 40.4%.
Boston Scientific, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 13.3%. Shares of the company have rallied 49.4% compared with the industry’s 7.1% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.3%.
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This article originally published on Zacks Investment Research (zacks.com).
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