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Align (ALGN) wins on boost in case shipments amid currency issues

Alignment TechnologyALGN’s robust product line and improved Invisalign case deliveries reinforce our confidence in the stock. Yet escalating spending and fierce competition are causing apprehension. Align Technology currently carries a Zacks Rank #3 (Hold).

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.

Align Technology, Inc. Awards

Align Technology, Inc. Award | Align Technology, Inc. Quote

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 young adult business 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.

On the other hand, Align Technology’s first-quarter earnings and revenue missed 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.

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.

Align Technology has underperformed its industry over the past year. The stock lost 59.2% against the industry’s 9% decline.

Key Choices

A few higher ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, Novo Nordisk NVO and Masimo Company MASI.

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. It currently sports a Zacks rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry over the past year. AMN gained 18.2% against a decline of 50.8% for the industry.

Novo Nordisk has a long-term earnings growth rate of 14.5%. The company has beaten earnings estimates in the past four quarters, delivering an average surprise of 7.6%. He currently wears a Zacks Rank #2 (Buy).

Novo Nordisk has outperformed its industry over the past year. NVO gained 31.2% against industry growth of 19.3%.

Masimo has an historic earnings growth rate of 15.1%. Masimo’s earnings have exceeded estimates for the past four quarters, with the average surprise being 4.4%. He currently wears a No. 2 Zacks rank.

Masimo has underperformed its industry over the past year. MASI was down 44.2% compared to the industry’s 25.6% plunge.

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It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.