Align Technology, Inc. ALGN is set to report fourth-quarter 2017 earnings results on Jan 30, after market close.

Last quarter, the company posted a positive earnings surprise of 23.2%. Align Technology has outperformed the Zacks Consensus Estimate in three of the preceding four quarters, the average positive earnings surprise being 16.6%. Let’s take a look at how things are shaping up prior to this announcement.

Factors at Play

This leading manufacturer and marketer of a system of clear aligner therapy, intra-oral scanners and CAD/CAM (computer-aided design and manufacturing) digital services used in dentistry, orthodontics and dental records storage has been witnessing strong revenue growth from the Scanner and Service business over the past few quarters. Moreover, the company has been seeing 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 reflect in the fourth-quarter results as well.

At the same time, Align Technology has been focusing on expanding work flow options of iTero scanners. In this context, we are upbeat about the company’s iTero Element intraoral scanning system available as part of Patterson Dental’s CAD/CAM portfolio in the United States and Canada. Moreover, the company launching a software upgrade to its iTero Element intraoral scanner that is capable of comparing patient scans over time with the latest TimeLapse technology also boosts our confidence on the stock.

Also, the company collaborated with exocad GmbH last March, whereby the integrated portfolio will result in high-tech workflow solution for efficient scanning, designing and manufacturing of in-house dental prosthesis. With these positives in place, Align Technology is expected to witness solid top-line contributions from the Scanner and Service business in the fourth-quarter results.

Investors may also be looking forward to the company’s recent signing of an agreement with Glidewell Dental to distribute the iTero Element intraoral scanning system with the latest In-Office Solution in North America. Per management, the collaboration will widen iTero’s reach to more than 50,000 dentists using Glidewell services. Notably, the company aims a launch in first-quarter 2018.

Align Technology, Inc. Price and EPS Surprise


Align Technology achieved a milestone of five million patients undergoing treatment with its flagship clear aligner system — InvisAlign — in November 2017. The company has been adopting several strategies to drive adoption of its core InvisAlign product line.

In terms of product development, in 2017, the company received two U.S. patents for Align Technology’s SmartTrack aligner material that is exclusively used for InvisAlign aligner treatment. Moreover, in a bid to gain traction in the InvisAlign platform, Align Technology collaborated with Digital Smile Design last March.

Meanwhile, in order to expand its Invisalign brand offerings, Align Technology introduced a patient-friendly solution — Invisalign Teen with mandibular advancement — for teens in certain markets of Canada, Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC) in the first half of 2017.

Coming to geographic expansion, the company opened its first office in Canada — a major market in terms of opportunity for expansion and growth. Management launched InvisAlign Technology Lite in North America post its introduction in the EMEA. The company witnessed strong adoption, particularly among GP dentists.

Moreover, Align Technology has been witnessing continued adoption of InvisAlign Technology in core markets in the EMEA and APAC regions. Interestingly, in the recently reported third quarter, the company achieved another milestone in terms of InvisAlign therapy adoption, where China became the second-largest InvisAlign market with United States topping the numbers. Align Technology registered almost a threefold year-over-year increase in its asset customer base, with major contributions from China. Also, in a bid to expand in the region, the company opened a InvisAlign Treatment Planning Facility in China last June.

The Zacks Consensus Estimate for total revenues of $395.48 million in fourth-quarter 2017 indicates a rise of 34.9% from the year-ago quarter.

Earnings Whispers
Our proven model does not conclusively show that Align Technology is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Align Technology has an Earnings ESP of -1.39%. This is because the Most Accurate estimate is pegged at 95 cents while the Zacks Consensus Estimate stands at 96 cents.

Zacks Rank: Align Technology carries a Zacks Rank #3 which increases the predictive power of ESP. However, an ESP of -1.39% makes surprise prediction difficult.

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

Nonetheless, the Zacks Consensus Estimate for fourth-quarter 2017 adjusted earnings of 96 cents reflects 43.3% growth from the year-ago quarter.

Stocks Worth a Look

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

Bio-Rad Laboratories BIO has an Earnings ESP of +4.45% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics MYGN has an Earnings ESP of +0.42% and a Zacks Rank #3.

Henry Schein HSIC has an Earnings ESP of +0.35% and a Zacks Rank #3.

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