We recently downgraded medical device company,
), to Underperform based on the company's dismal third quarter
results and disappointing outlook for the fourth quarter.
Estimates for Align Tech, which focuses on the orthodontics
market, have been declining ever since it reported preliminary
third quarter results in October. Align Tech's third quarter
revenues as well as EPS of $136.5 million and 28 cents missed the
Zacks Consensus Estimates of $140 million and 29 cents,
respectively. Fourth quarter guidance (revenue of $134.2 - $137.8
million and EPS of 21 - 23 cents) was also disappointing.
Following the release of third quarter results, the Zacks
Consensus Estimate for 2012 has gone down 7.4% to $1.13 per
share. The Zacks Consensus Estimate for 2013 has also declined
significantly (down 11.5% to $1.23 per share). With the Zacks
Consensus Estimates for both 2012 and 2013 going down, the
company now has a Zacks #4 Rank (Sell).
Cause for Concern
Align Tech recently said that it will be able to achieve just
the lower end of its previously issued fourth quarter guidance.
Continued weakness in the global economy that resulted in a
challenging environment for dental technology sales is expected
to impact fourth quarter results. Moreover, Hurricane Sandy led
to significant sales disruptions, affecting Align Tech's customer
On top of this, a series of bad news like the termination of
two distribution agreements and higher management quitting the
company also add to our concern. Given the third quarter
performance and the challenging outlook, we fail to see any
significant catalyst that could drive the shares in the near
term. Gross margins will also remain under pressure.
With the company saying that it may only be able to achieve
the lower end of its fourth quarter guidance, the Zacks Consensus
Estimate for the fourth quarter has gone down 25.8% to 23 cents.
Chances remain that fourth quarter results could lag expectations
Med-Tech Stocks That Warrant a Look
While we prefer to avoid Align Tech until we see signs of
improvement in the company's performance, other medical device
stocks worth a look are
Span-America Medical Systems Inc.
Merit Medical Systems, Inc.
). Both are Zacks #1 Rank (Strong Buy) stocks.
ALIGN TECH INC (ALGN): Free Stock Analysis
MERIT MEDICAL (MMSI): Free Stock Analysis
(SPAN): ETF Research Reports
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