We recently reiterated Align Technology (ALGN) at Outperform based on its encouraging third-quarter 2013 results and huge opportunities in the malocclusion market. Banking on its core product Invisalign, the company witnessed balanced sales growth across all its channels. The stock currently carries a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Align’s preliminary third-quarter 2013 results surpassed the Zacks Consensus Estimate on both fronts. Along with revenues, earnings per share (EPS) remained above the guidance range. This has led the company to provide a strong fourth-quarter guidance, which further boosts investors’ confidence.
Align witnessed balanced sales growth across all its channels during the last reported quarter. There was strong Invisalign volume growth in all product segments, customer channels and geographies, reflecting continued increase in its utilization.
Total Invisalign revenue surged 21.2% year over year on increased Invisalign shipment and higher Average Selling Prices (ASPs). This was primarily due to strong volume growth in Asia-Pacific coming from traditional direct country markets of Japan and China, as well as new direct country markets in Australia, New Zealand and Hong Kong. Collectively, this region continues to represent a strong growth opportunity for Align.
Further, teenage orthodontic market penetration is also going on at a rapid pace. Patient traffic remained solid for North American orthodontic customers. This resulted in strong sequential (23%) and year-over-year (18%) growth for Invisalign volume, especially in the teenage patient segment.
At the same time, we are encouraged by the improvements in product and technology over the past few years, including the launch of new SmartTrack for Invisalign clear aligners and feature enhancements of Invisalign G4. All these are helping build greater clinical confidence translating into greater adoption for Invisalign. As per recent data, 78% of the doctors surveyed agreed to the fact that SmartTrack supports better clinical outcomes. Rising earnings estimates as well as a product with great appeal and untapped potential in the malocclusion market make us optimistic about Align, going ahead.
Other Stocks to Consider
While we prefer to remain on the sidelines on Align Technology, other medical device stocks worth a look are Cepheid (CPHD), CryoLife Inc. (CRY) and AngioDynamics Inc. (ANGO). While AngioDynamics carries a Zacks Rank #2 (Buy), Cepheid and CryoLife hold the same Zacks Rank as Align.
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