Since our "Outperform" recommendation two months back, shares of
Align Technology Inc.
) have increased considerably and are hovering around its 52-week
high level. Given its stretched valuation, we expect limited upside
potential for the stock at present and hence revert back to
"Neutral" recommendation with a target price of $37.00.
Over the past several quarters, Align witnessed positive growth
resulted from increased patient visits coupled with growing
interest in its core product, Invisalign Clear Aligner. Moreover,
over the past few years, Align began introducing enhanced features
across the Invisalign system.
These feature enhancements are a collection of clinical innovations
designed to address some of the most significant treatment
challenges doctors encounter. The company's Invisalign G3 and G4
are working successfully for its class II and class III patients.
The company is also witnessing increased confidence among its
Orthodontic customers using Invisalign, as a result of the clinical
improvements in Invisalign G3 and Invisalign G4.
Moreover, Align expects to maintain the growth momentum in the
upcoming quarters, primarily on the back of scanner sales and new
opportunities in the digital dentistry and restorative markets. We
believe that on the back of its several strategic initiatives,
Align will continue to exhibit strong growth momentum.
The improved sales were also attributable to Align's
interoperability with Cadent products. Besides, there has been a
continued mix shift toward Invisalign Assist, as a result of
Align's efforts to expand the use of the product. Moreover, its
focus on the international market, especially Europe, China and
Japan, is encouraging.
However, we remain concerned about increased expenses leading to
margin contraction during the quarter. Additionally, a tough
competitive landscape resulted in a continuous decline in the
blended prices over the past few quarters. The company faces
significant competition from players such as
). We also remain concerned about the economic uncertainty as it
forces patients to defer the dental procedures, which are elective
The company retains a Zacks #3 Rank (Hold) in the short term.
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