Align Technology’s ALGN dental average selling prices (ASPs) are being severely impacted by the current economic uncertainty and foreign exchange headwinds. The competitive landscape also remains an overhang. The stock carries a Zacks Rank #4 (Sell) currently.
The ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting Align Technology margins. Deteriorating international trade and global inflationary pressure are leading to a tough situation related to raw material and labor costs as well as freight charges. Added to these, higher interest rate has put the dental treatment space (which is highly elective) in a tight spot.
Align Technology is also concerned about the military conflict between Russia and Ukraine that is likely to continue. The company noted earlier that while it continues to employ research and development personnel in Russia as well as limited post-sales support and administrative personnel, its total number of employees in Russia was materially reduced in 2022. Align Technology anticipates increasing headwinds from macroeconomic uncertainty and potential supply issues related to the war in the Middle East in the upcoming period.
As a result of this, in the second quarter, the company’s gross margin contracted 95 basis points (bps) year over year to 70.3% on an increase of 5.9% in the cost of net revenues.
This apart, foreign exchange is a major headwind for Align Technology due to a considerable percentage of its revenues coming from outside the United States (in 2023, 44% of the company’s consolidated revenues came from international regions). During the second quarter of 2024, Clear Aligner ASP was down sequentially and lower than the company’s outlook, primarily due to a significant impact of unfavorable foreign exchange across multiple currencies, especially the Japanese yen, euro and Brazilian real. Clear Aligner revenues witnessed a 1.7% unfavorable foreign exchange impact. For Imaging Systems and CAD/CAM Services, too, the top line witnessed an unfavorable currency impact of 1.7% year over year in the second quarter.
Align Technology, Inc. Price
Align Technology, Inc. Price
Align Technology, Inc. price | Align Technology, Inc. Quote
Align Technology faces significant competition from traditional orthodontic appliance (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.
On a positive note, Align Technology is strategically capturing the growing malocclusion market, one of the most prevalent clinical dental conditions in the world. According to Align Technology’s March 2024 data, it is currently affecting approximately 60% to 75% of the global population. The company estimates that there are approximately 600 million people globally with malocclusion. However, most 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.
In the second quarter of 2024, Clear Aligners volumes increased 6.2% sequentially and 3.2% year over year, driven by growth from adult patients and strong teen case starts across regions, led by strength in Asia Pacific, EMEA and Latin America. Second-quarter results also reflected a record number of doctors submitting cases, and shipment to a record number of doctors for the quarter. For the second quarter of 2024, adult patient case starts were up 5% sequentially and 1% year over year, reflecting the highest number of adult shipments in eight quarters, driven by strength in the GP channel, led by North America and APAC dentists.
In the teen market, over 216,000 teens and younger patients started treatment with Invisalign Clear Aligners in the second quarter, up 8% year over year, reflecting strength in APAC and EMEA. Teen starts were up 8% year over year, reflecting strength from doctors treating young kids, also known as "growing patients.”
Key Picks
Some better-ranked stocks from the broader medical space are Haemonetics HAE, Avanos Medical AVNS and Teleflex TFX.
Haemonetics has an estimated fiscal 2025 earnings growth rate of 15.4% compared with the industry’s 12.1%. HAE’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 13.2%. Its shares have risen 1.4% compared with the industry’s 4.7% growth in the past year.
HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Avanos Medical, carrying a Zacks Rank #2 at present, has an estimated 2024 earnings growth rate of 34.9% compared with the industry’s 11.5%. Shares of the company have fallen 1.5% against the industry’s 3.9% rise over the past year.
AVNS earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 5.7%. In the last reported quarter, it delivered an average earnings surprise of 17.2%.
Teleflex, carrying a Zacks Rank #2 at present, has an earnings yield of 5.8% against the industry’s negative yield of 6.2%. Shares of TFX have decreased 1.3% against the industry’s 3.8% rise over the past year.
TFX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 5.6%. In the last reported quarter, it delivered an earnings surprise of 2.7%.
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