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Align Technology (ALGN) Q2 Earnings: A Beat in the Cards?

We expect Align Technology, Inc. ALGN to beat expectations when it reports second-quarter 2017 earnings on Jul 27, after market close.

Last quarter, the company had posted a positive earnings surprise of 26.87%. It is worth noting that Align Technology has outperformed the Zacks Consensus Estimate in three of the preceding four quarters, with an average positive earnings surprise of 19.89%. Let’s take a look at how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Align Technology is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP:  Align Technology has an Earnings ESP of +1.37% as the Most Accurate estimate is at 74 cents while the Zacks Consensus Estimate is pegged lower at 73 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our https://www.zacks.com/premium/esp-buy?adid=zp_article_espfil...">Earnings ESP Filter.

Zacks Rank: Align Technology currently carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of Align Technology’s Zacks Rank #2 and +1.37% ESP makes us reasonably confident of an earnings beat.

What’s Driving the Better-Than-Expected Earnings?

We are upbeat about Align Technology’s execution of strategic initiatives like international expansion, thereby ensuring Invisalign treatment for a growing base of patients. In this context, the company strengthened its foothold internationally by acquiring the Invisalign distributors in the highly lucrative Europe, Middle East and Africa (EMEA) region as well as Brazil in Feb 2017. This is likely to drive the company’s results in the to-be-reported quarter.

In May, the company announced the receipt of two U.S. patents for Align’s SmartTrack aligner material that is exclusively used for Invisalign aligner treatment. Moreover, in a bid to gain traction in the Invisalign platform, Align collaborated with Digital Smile Design in March. Post-collaboration, Align’s Invisalign clear aligner treatment can be used by dentists during tooth alignment procedures along with Smile Design protocols.

Align Technology, Inc. Price and EPS Surprise

 

Notably, to expand its Invisalign brand offerings, Align Technology introduced a patient-friendly solution – Invisalign Teen with mandibular advancement – for teens in March. According to the company, this advancement will help it offer more options for teen treatment which might boost its top line in the yet-to-be reported quarter. 

Recently, the company expanded work flow options of its leading iTero scanners. In this context, Align collaborated with exocad GmbH in March, whereby the integrated portfolio will result in high-tech workflow solution for efficient scanning, design and manufacturing of in-house dental prosthesis. In February, the company had announced the addition of digital workflow for Nobel Biocare implants to its iTero intraoral scanner portfolio.

Moreover, the company saw increased adoption of iTero scanners for Invisalign case submissions instead of PVS impressions especially in North America, thereby driving Invisalign utilization. Management expects this bullish trend to likely continue in the yet-to-be reported quarter.

Notably, for second-quarter 2017, the company projects earnings per share of 71−74 cents on revenues of $340–$345 million. The company also expects Invisalign case shipments in the band of 221,000 to 224,000, up 25–27% from a year ago.

On the flip side, unfavorable foreign currency might affect the company’s revenues in the to-be-reported quarter. Also, the company is exposed to seasonal demand fluctuations, higher operating expenses pertaining to increased head count along with higher investments targeted toward growth acceleration in geographical expansion and portfolio expansion

Other Stocks to Consider

Here are some other companies you may consider as our model shows that they also have the right combination of elements to post an earnings beat in the upcoming quarter:

Becton, Dickinson and Company BDX has an Earnings ESP of +0.41% and a Zacks Rank #2. You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link_invidea...">the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher Scientific Inc.TMO has an Earnings ESP of +0.44% and a Zacks Rank #2.

Stryker Corporation SYK has an Earnings ESP of +0.66% and a Zacks Rank #2.

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