Align Technology (ALGN) to Post Q2 Earnings: What's in Store?

Align Technology, Inc. ALGN is set to report second-quarter 2020 results on Jul 22, after the closing bell.

In the last reported quarter, the company reported a negative earnings surprise of 31.78%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on three occasions and missed in one, the four-quarter average beat being 2.94%.

Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

Invisalign System

Align Technology is expected to have continued to register a fall in Invisalign system’s revenues in the second quarter of 2020 due to the closing down of non-essential businesses and imposition of widespread stay-at-home orders in EMEA and North America since mid-March. This led to the shutting down of a vast majority of Invisalign practices and a pause in attending to patients. The fall in revenue, which was witnessed in the first quarter, is likely to have dented the second quarter top line as well.

Align Technology, Inc. Price and EPS Surprise

Align Technology, Inc. Price and EPS Surprise

Align Technology, Inc. price-eps-surprise | Align Technology, Inc. Quote

However, the opening up of businesses in China since mid-March is likely to have had a positive impact on the top line.

Clear Aligner shipments were robust in the first quarter despite the pandemic, which is expected to have continued in the second quarter as well. Growth in shipment volumes is expected on strong adoption of non-comprehensive products, thanks to Invisalign Go systems and Invisalign Moderate.

In the second quarter of 2020, for the American markets, we expect this segment to have registered growth on consistent strength in Invisalign volumes in orthodontist and GP channels (including DSOs) as well as continued uptick in the number of teenage patient cases. However, since the global healthcare industry is currently postponing non-emergency and elective procedures to focus on COVID-19 treatments, this is likely to have weighed on the company’s performance. Strength in Latin America, led by Brazil, is likely to have continued.

Internationally, for the to-be-reported quarter, the company was earlier uncertain about the Invisalign volume growth across geographies. Align Technology has a strong international presence, with China being one of its largest country markets. Although recovery is well on track in China, it is not uniform across the entire country. Asia-Pacific (APAC), excluding China, is still unstable as it is reeling from the effects of widespread lockdown whereas market conditions in other countries like Taiwan and Korea are improving. The picture is also very bleak for the Americas due to lockdown and subsequent re-openings.

Align Technology’s expansion of digital platform with cloud-based ClinCheck Pro 6.0 and ClinCheck “In-Face” Visualization tool for Invisalign treatment looks promising and is expected to have boosted the top line. Other notable launches include Invisalign Virtual Appointment and Invisalign Virtual Care, contributing to the company’s virtual solutions.

Scanner & Service Business

Align Technology has been generating solid revenues from the Scanner and Service business over the past few quarters. The company has been witnessing increased adoption of iTero scanners for Invisalign case submissions, especially in North America and APAC. However, similar to the first quarter, the company expects to have witnessed deferred purchase decisions for the scanners in the second quarter due to the pandemic.

However, strength in EMEA and Latin America, the Zimmer Biomet distribution agreement, the introduction of iTero 5D in Mexico and additional Latin American distributor markets are expected to have continued in the second quarter. Meanwhile, the FDA 510(k) clearance for iTero Element 5D Imaging System is likely to have boosted customer adoption in the quarter.

The Estimate Picture

The Zacks Consensus Estimate for second-quarter 2020 revenues is pegged at $328.4 million, indicating a decline of 45.3% from the year-ago figure. The same for the bottom line is pinned at a loss of a penny per share, suggesting fall of 100.6%.

What Our Model Suggests

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with an Earnings ESP has good chances of beating estimates. However, this is not the case here as you can see:

Zacks Rank: The company currently carries a Zacks Rank #3 (Hold).

Earnings ESP: Align Technology has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks Worth a Look

Here are a few medical stocks worth considering as these have the right combination of elements to beat on earnings this reporting cycle.

Integra LifeSciences Holdings Corporation IART has an Earnings ESP of +20.69% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Exact Sciences Corporation EXAS has an Earnings ESP of +23.14% and a Zacks Rank of 2 at present.

Thermo Fisher Scientific Inc. TMO has an Earnings ESP of +14.37% and is a Zacks #1 Ranked stock.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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