Align Technology is Tuesday's IBD Stock Of The Day. The Invisalign-maker topped Wall Street's fourth-quarter expectations and ALGN stock is now eyeing two potential entries.
The company makes clear teeth-straightening systems called Invisalign. UBS analyst Kevin Caliendo says investors recently regained confidence in Align stock, which has surged 50% this year. December-ended quarter results from Align and its competitors, management commentary, U.S. economic data and a recent uptick in demand for Invisalign cases support this view, he said in a note to clients.
"These data points all suggest potential upside to relatively conservative consensus case growth estimates in the first half of 2023, which only require a very modest increase in sequential utilization to achieve," he said. "We believe this alone should support a valuation that is still well below its 10-year averages."
On today's stock market, ALGN stock climbed 3.6% to close at 327.64.
ALGN Stock: Better-Than-Expected Declines
The fourth quarter was a bright spot for ALGN stock. Investors expected a light quarter due to Covid uncertainty in China and a challenging macroeconomic environment. But Align beat expectations with adjusted earnings of $1.73 per share and $902 million in sales.
Both metrics declined markedly, however. Earnings toppled 39% and sales fell almost 13%. Align pointed to "signs of stability" on its earnings conference call with analysts. But the company didn't provide an earnings or sales outlook for the first quarter or the full year.
Still, Caliendo boosted his price target on ALGN stock to 420 from 225 in mid-February.
Caliendo expects low double-digit top-line growth in 2024. That largely depends on Align's ability to register more doctors to the Invisalign-referring program. About half of Invisalign cases shipped are due to demand from doctors in the U.S. and China. But the number of Invisalign-registered doctors is shrinking. Meanwhile, competitors are seeing growth.
"If this trend does not reverse in the first half of 2023, hitting consensus targets in the back half of 2023 and especially getting to low double-digit case growth in 2024 will become challenging," he said. "We believe this would call into question Align's 20% long-term growth target."
But Caliendo kept his buy rating on ALGN stock.
Stability Across Adults, Teens
Evercore ISI analyst Elizabeth Anderson says Align Tech is seeing "stability across both adult and teen demographics." She expects growth in 2023 even if there's no improvement in the macro environment.
She noted some doctors who switched to aligners have reverted back to braces. But other doctors have permanently changed their workflow to embrace Invisalign systems. And about 60% of doctors still don't have the scanners needed to track progress using Invisalign. That's a big market, she said in her note to clients.
Further, the price of Invisalign (set of clear retainer) cases is expected to rise 5% this year.
"The business has the ability to grow even if the macro does not improve given the number of potential patients, particularly adolescents," she said.
Anderson has an outperform rating and 375 price target on ALGN stock.
ALGN Stock Eyes Two Buy Points
Align stock is consolidating with a buy point at 368.97, according to MarketSmith.com.
But shares could also bounce off their 21-day exponential moving average and provide an early entry at 357.10.
Notably, ALGN stock has a strong IBD Digital Relative Strength Rating of 95. This puts its shares in the top 5% of all stocks when it comes to 12-month performance. Its fundamental and technical measures are in the leading 16% of all stocks, as measured by ALGN stock's Composite Rating.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
