On Thursday, Piper Sandler adjusted its outlook on Align Technology (NASDAQ:ALGN), a leading manufacturer of clear aligners, by reducing the price target to $285 from the previous $315 while maintaining an Overweight rating on the stock. The revision follows a reported 4% year-over-year decline in September clear aligner case volumes, which contributed to a slight 0.5% drop in third-quarter U.S. orthodontic case volumes.
Piper Sandler's analysis suggests that the third-quarter performance was consistent with the year-over-year trends observed in recent months, aligning with their projections for the U.S. market. The firm had anticipated a stable growth of 2%, in line with year-to-date results. The analyst noted a divergence in demand between different age groups, with teen case volumes declining by 8.5% year-over-year and underperforming compared to adults, whose demand has seen a rebound.
The firm's commentary highlighted a mixed performance in the third quarter, with teen volumes struggling but adult demand showing signs of recovery. This observation was supported by recent discussions with a large Dental Service Organization (DSO), which reported a strong September for adult patient cases.
Despite the lowered price target, Piper Sandler expressed a positive stance on Align Technology's shares, considering the current stock levels as a favorable entry point for new investors. The firm's optimism is based on the expectation that third-quarter results will not disappoint in comparison to the consensus and that estimates for the year 2025 will likely be adjusted to more realistic figures, potentially making the stock more attractive for long-term investors.
In other recent news, Align Technology reported a significant growth in Q2 with total revenues of $1,028.5 million, primarily due to an increase in Clear Aligner volumes. The company's Q3 worldwide revenue is projected to range from $980 million to $1 billion, with total revenue growth for fiscal 2024 expected to be up 4% to 6%. Align Technology also introduced a discount program for Costco (NASDAQ:COST) members in the United States, offering a $400 discount on Invisalign treatment with participating providers.
Stifel recently adjusted its outlook on Align Technology's shares, lowering the price target from $350 to $285, while still recommending it as a Buy. Meanwhile, financial advisory firm Needham initiated coverage on the company's shares with a Hold rating, recognizing Align's potential for long-term earnings per share (EPS) growth and revenue growth rate of 6-7%. Piper Sandler maintained its Overweight rating on the company's shares, despite a 6% year-over-year decline in case volumes for August.
InvestingPro Insights
To complement Piper Sandler's analysis of Align Technology (NASDAQ:ALGN), recent data from InvestingPro offers additional context for investors. Despite the lowered price target, Align's financials show some positive indicators. The company boasts a robust gross profit margin of 70.16% for the last twelve months as of Q2 2024, reflecting strong pricing power in the clear aligner market. This aligns with the firm's leading position in the industry and its ability to maintain profitability even in challenging market conditions.
InvestingPro Tips highlight that Align Technology has been aggressively buying back shares, which could be seen as a sign of management's confidence in the company's long-term prospects. This strategy may also support share prices, potentially benefiting investors at current levels. Additionally, the company is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.8, suggesting that the stock might be undervalued considering its growth potential.
It's worth noting that Align Technology has a perfect Piotroski Score of 9, indicating strong financial health across various metrics. This could provide some reassurance to investors concerned about the recent volume declines reported by Piper Sandler.
For those interested in a deeper dive into Align Technology's prospects, InvestingPro offers 5 additional tips that could further inform investment decisions.
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