Bear of the Day: Align Technology (ALGN) Estimates come down after mixed guidance, but it looks like the pessimism was discounted already

Align Technology ALGN last week delivered fourth-quarter 2021 EPS of $2.83, up from the year-ago $2.61, reflecting growth of 8.4%. The quarter's EPS surpassed the Zacks Consensus Estimate by 6.4%.
GAAP EPS for the quarter was $2.40, up from the year-ago EPS of $2.00, reflecting an uptick of 20%.
Full-year adjusted EPS was $11.22, reflecting a 113.7% increase from the year-ago period. However, the metric surpassed the Zacks Consensus Estimate by 1.2%.
Full-year GAAP EPS was $9.69, reflecting a 56.8% fall from the year-ago period.
Revenues surged 23.6% year over year to $1.03 billion in the quarter, beating the Zacks Consensus Estimate by 1.4%. Full-year revenues were $3.95 billion, reflecting a 59.9% increase from the year-ago period.
Guidance and Analyst Downward Revisions
Align Technology has provided its financial outlook for 2022, assuming no new notable surges post the current wave, no significant practice disruptions, and no material supply chain problems throughout the year.
The company expects net revenue growth in the band of 20-30% despite the challenges posed by the Omicron variant. The Zacks Consensus Estimate for 2022 revenues is pegged at $4.76 billion.
The company expects 2022 operating margin to be about 24% on a GAAP basis. Meanwhile, adjusted operating margin is estimated at around 3 points higher than the GAAP operating margin, excluding stock-based compensation and intangible amortization from certain acquisitions.
Based on these results, analysts took down this year's EPS consensus estimate from $13.34 to $12.70. And next year was cut from $16.15 to $15.56. That's why Align is in the cellar of the Zacks Rank.
Analysts Lower Price Targets But Remain Bullish
I've been an ALGN bull for 5 years as I considered the impact of a digital aligner solution being able to serve tens of millions of patients in China and India. The company and the stock certainly achieved many big goals since then.
And it sure looked like a buying opportunity under $500. Now that the stock has rallied out of that hole, it also looks like a lot of pessimism was priced-in. In that sense, the earnings and mixed guidance were like a relief that things were not worse. So let's see where analysts stand now...
Align Technology price target lowered to $625 from $675 at Stifel: Analyst Jonathan Block observed that Q4 cases missed his "Street low" 651,000 estimate by about 20,000 and Q1 implied case volume guidance is likely about 70,000-80,000 below where the Street was. Coupled with a 2022 operating margin view of 27%, versus his prior view of 28%-plus, Block thinks it is likely that the Street's 2022 EPS estimate will come down, which he noted "usually equates to a pullback in Align's stock."
Align Technology price target lowered to $722 from $782 at Credit Suisse: Analyst Matt Miksic attributed his adjustment primarily to a lower target multiple. The analyst notes Q4 sales exceeded expectations, driven by strength in iTero scanner sales offset by COVID-related demand and utilization pressure on Clear Aligners.
Align Technology price target lowered to $650 from $745 at Baird: Analyst Jeff Johnson noted January trends improved, and management believes 20%+ growth this year for both global revenue and case shipments remains achievable. Johnson believes shares remain under-valued and under-appreciated.
Finally, Piper Sandler analyst Jason Bednar reiterated his Overweight rating on Align Technology with a $740 price target following the company's Q4 results. Management stood behind delivering 20%-plus revenue growth in 2022, inclusive of 20% Invisalign volume growth he noted. He believes the stock's risk/reward looks "incredibly attractive," but wouldn't be surprised to see the shares remain range-bound until industry data points and channel checks confirm clear aligner demand is rebounding post-omicron.
Bottom line on Align: I think the stock is a buy near $500, especially after it looks like shares discounted the pessimism even before earnings. So now we just have to see if analysts stop lowering estimates and start raising them. The Zacks Rank will let us know.

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