Align Technology's ALGN dental procedures continue to be affected by the current economic uncertainty. The competitive landscape also remains an overhang. The stock carries a Zacks Rank #4 (Sell) currently.

Factors Dragging ALGN Shares Down

The ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting revenues and margins for Align Technology. Deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor cost, and freight charges and rising interest rates have put the dental treatment space (which is highly-elective) in a tight spot. In the third quarter, Align Technology’s revenues were dented in part due to more pronounced seasonality for Clear Aligners than expected, as well as continued weak consumer sentiment and a soft dental market, especially in the United States.

Added to this, the ongoing military conflict in the Middle East is likely to continue. We anticipate increasing headwinds from macroeconomic uncertainty and potential supply issues related to the war in the Middle East in the upcoming period too. Given this, in the third quarter, the company’s operating margin contracted 72 basis points (bps) year over year.

Meanwhile, foreign exchange is a major headwind for Align Technology due to a considerable percentage of its revenues coming from outside the United States (in 2023, 44% of the company’s consolidated revenues came from international regions). During the third quarter of 2024, Clear Aligner revenues were down 1%, primarily due to lower ASPs. Further, in the third quarter, lower scanner ASPs resulted in a sequential decline in the Systems and Services revenues. From time to time, Clear Aligner Average Selling Prices (ASP) are significantly impacted by unfavorable foreign exchange across multiple currencies, especially the Japanese yen, euro and Brazilian real.

Recently, Align Technology faced a decline in Invisalign ASPs for comprehensive treatment options. This resulted in a decline in the company’s revenues. In the second quarter in particular, the company faced a sequential decline in ASP, primarily reflecting higher discounts and unfavorable product mix shift to lower ASP products. On a year-over-year basis, the decrease in non-comprehensive ASPs reflected higher discounts, a product mix shift to lower ASP products and the unfavorable impact of a price adjustment in the U.K. for the mandatory application of VAT to clear aligner prices.

Align Technology, Inc. Price

Align Technology, Inc. price | Align Technology, Inc. Quote

In the third quarter of 2024, Clear Aligner ASPs were down, reflecting the impact from unfavorable foreign exchange of 1.5%, a 20% price reduction in the United Kingdom to offset a ruling by the U.K. tax authorities in the first quarter of 2024 that requires a 20% VAT applied to Clear Aligner sales in the UK, product mix shift to lower-priced products, geographic mix and higher discounts.

Over the past year, shares of ALGN have declined 22.4% against the industry’s 2.1% growth. The company continues to face supply issues, which impact margins and ASP-related pressure. Given the complicated geopolitical situation worldwide, no major reversal is expected anytime soon. Therefore, we expect the stock trend to remain gloomy in the coming days.

Factors Favoring ALGN

Align Technology is strategically capturing the growing malocclusion market, one of the most prevalent clinical dental conditions in the world. According to Align Technology’s March 2024 data, it currently affects approximately 60% to 75% of the global population. The company estimates that there are approximately 600 million people globally with malocclusion. However, most of them do not seek orthodontic treatment mainly due to negative perceptions of metal braces, affordability of treatment and accessibility to doctors in certain markets and geographies.

Annually, only 22 million people globally elect treatment by orthodontists, which means that a large portion of the patient base is unattended. The company also noticed that almost all of this patient base could be treated with Invisalign Clear Aligner. This represents a significant growth opportunity for Align Technology to increase its share of the existing global market of orthodontic case starts, especially among teens, and expand the market for digital orthodontics, especially among adults.

Among the recent developments, Align Technology continues to receive positive feedback for Invisalign Palatal Expander System. Through the third quarter of 2024, Align Technology successfully continued to commercialize this device. In October, the company announced  Palatal Expander System’s commercial availability in Singapore and expects to extend the availability of the transformative Invisalign Palatal Expander System to even more doctors and their patients in markets across the Asia Pacific region. Further, the company is gaining in terms of strong adoption of Vivera retainers ordered through DSP, as well as clinical training and education accessories in eCommerce.

Key Picks

Some better-ranked stocks in the broader medical space are Penumbra PEN, Haemonetics HAE and Phibro Animal Health PAHC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Penumbra shares have dropped 6.2% in the past year. Estimates for the company’s 2024 earnings per share have increased 2 cents to $2.81 in the past 30 days. PEN’s earnings beat estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 10.54%. In the last reported quarter, it posted an earnings surprise of 23.19%.

Estimates for Haemonetics’ fiscal 2025 earnings per share have remained constant at $4.59 in the past 30 days. Shares of the company have dropped 14.1% in the past year against the industry’s growth of 11.2%. HAE’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.82%. In the last reported quarter, it delivered an earnings surprise of 2.75%.

Estimates for Phibro Animal Health’s fiscal 2025 earnings per share have increased 1.9% to $1.62 in the past 30 days. Shares of the company have surged 93.5% in the past year compared with the industry’s 11.1% rise. PAHC’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 25.47%. In the last reported quarter, it delivered an earnings surprise of 52.17%.

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