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Will Invisalign Drive Align Technology's (ALGN) Q3 Earnings?

We expect Align Technology, Inc. ALGN to beat expectations when it reports third-quarter 2017 earnings on Oct 26, after market close.

Last quarter, the company posted a positive earnings surprise of 16.44%. Align Technology has outperformed the Zacks Consensus Estimate in three of the preceding four quarters, with an average positive earnings surprise of 16.71%. 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 +1.24% as the Most Accurate estimate is 85 cents while the Zacks Consensus Estimate is pegged 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 Earnings ESP Filter.

Zacks Rank: Align Technology currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 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 #3 and +1.24% ESP makes us reasonably confident of an earnings beat.

Align Technology, Inc. Price and EPS Surprise

 

 

Align Technology, Inc. Price and EPS Surprise | Align Technology, Inc. Quote

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

We are upbeat about Align Technology’s strategic initiatives like international expansion, ensuring Invisalign treatment for a growing base of patients. Also, we are upbeat about the international teen case growing 40.5% year over year in the last reported quarter, reflecting growing demand. In the quarter, the company reached a new benchmark of 1 million teen patients who had adopted the Invisalign treatment.

Management anticipates consistent growth in the Asia-Pacific region. In a bid to grow in this region, the company opened new Invisalign Treatment Planning Facility in China.

We are upbeat about management’s expectations of continued strong performance in international markets in the to-be-reported quarter. Invisalign volumes are likely to grow sequentially, reflecting continued strong growth in APAC. However, summer holidays in EMEA may partially mar the performance.

Notably, to expand its Invisalign brand, Align Technology introduced a patient-friendly solution – Invisalign Teen with mandibular advancement – for teens in certain markets of Canada, EMEA and APAC 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. 

In May, the company announced the receipt of two U.S. patents for Align Technology’s SmartTrack aligner material that is exclusively used for Invisalign aligner treatment.

Recently, the company expanded work flow options of its leading iTero scanners.  In this context, Align Technology recently signed a distribution agreement with Patterson Dental, a business unit of Patterson Companies, Inc. PDCO. Per the non-exclusive agreement, effective September 2017, Align Technology’s iTero Element intraoral scanning system will be available as part of Patterson Dental’s CAD/CAM portfolio in the United States and Canada. This latest development should boost the iTero scanner customer base starting from the third quarter itself.

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 continue in the yet-to-be reported quarter.

Notably, for the third quarter of 2017, the company projects EPS of 78-81 cents on revenues of $355-$360 million. The company also expects Invisalign case shipments in the band of 231,000 to 234,000, up 27-29% over the same period 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 through geographical expansion and portfolio expansion.

Other Stocks to Consider

Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

The Cooper Companies, Inc. COO has an Earnings ESP of +0.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher Scientific Inc. TMO has an Earnings ESP of +0.33% and a Zacks Rank #2.

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Thermo Fisher Scientific Inc (TMO) : Free Stock Analysis Report
 
Align Technology, Inc. (ALGN) : Free Stock Analysis Report
 
Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report
 
Cooper Companies, Inc. (The) (COO) : Free Stock Analysis Report
 
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