Recently, we reiterated our ‘Neutral’ recommendation for Align Technology (ALGN) with a target price of $22.00.
Align reported fourth quarter adjusted EPS of 14 cents missing both the Zacks Consensus Estimate of 17 cents and the year-ago quarter’s 16 cents. For fiscal 2010, adjusted EPS came in at 80 cents, missing the Zacks Consensus Estimate by 2 cents, but higher than 41 cents in 2009.
Total revenue increased 7.3% year over year to $92.9 million (within the company’s guidance of $90.5–$93.0 million), barely beating the Zacks Consensus Estimate of $92.0 million. For fiscal 2010, revenue came in at $372.8 million (after adjusting for $14.3 million of previously deferred revenue for Invisalign Teen replacement aligners), up 19.4% compared with 2009 and marginally beating the Zacks Consensus Estimate of $372.0 million.
Align has undertaken several strategies for easier and wider adoption of its core product, Invisalign. These include acceleration of product/technology development, greater clinical effectiveness, extension of Invisalign brand and driving international growth.
Align is making good progress in Europe and Japan, as well as through its distributors in the APAC, EMEA and Latin America. The company also increased its sales force and appointed territory managers for targeted international markets. Revenues derived from the international market increased 7% on a sequential basis and 17% from the corresponding period of last year.
Moreover, to further penetrate the malocclusion market by making Invisalign more attractive to both doctors and patients, in January 2011 Align entered into an agreement with Cadent. They will jointly develop software applications that will run on Cadent’s scanners used in Invisalign treatment.
Despite higher revenues EPS and margins are down because of higher expenses. The primary reason for the huge decline in operating margin was a 13.2% rise in operating expenses driven by higher sales and marketing (8.4%), general and administrative (20.3%), and research and development (19.2%) expenses.
Higher operating expenses resulted from Align’s continuous strategic investments in the international market, product development and costs associated with the Align-Cadent deal. The trend is likely to continue in 2011 due to which the company’s projected EPS guidance was lower than our expectation.
We also remain concerned about the economic uncertainty as it coaxes patients to defer the dental procedures, being elective in nature. Viewing the near-term challenges, we have a Zacks #4 Rank (sell) in the short-term.
However, we are confident about the long-term potential of Align and hence maintain our ‘Neutral’ stand.
ALIGN TECH INC (ALGN): Free Stock Analysis Report
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