On Thursday, Leerink Partners adjusted their outlook on Align Technology (NASDAQ:ALGN), reducing the price target to $235 from the previous $257, while maintaining a Market Perform rating.
This adjustment comes in response to the company's third-quarter results, which fell short of expectations due to challenging market conditions that affected both the number of new cases, particularly in North America, and the average selling prices (ASPs).
The analyst from Leerink Partners noted that while Align Technology's quarterly performance was weaker than anticipated, the market had already considered the possibility of such an outcome. The fourth-quarter guidance also came in below expectations, reflecting ongoing macroeconomic concerns about reduced demand.
According to the analyst, for Align Technology's stock to fully recover, there needs to be an improvement in macro conditions, leading to a more confident consumer and, consequently, accelerated growth.
Despite the third-quarter miss, the analyst does not view the situation negatively but also recognizes that there isn't enough evidence to predict a significant near-term rise in the stock's value.
The reduction in the price target to $235 is also due to a decrease in the target CY25 EV/EBITDA multiple, which has been lowered from approximately 16 times to about 15 times. This change reflects lowered estimates and increased uncertainties about growth.
Leerink Partners emphasized that Align Technology's investment in manufacturing improvements is sensible but has yet to contribute to revenue growth. The firm reiterated its Market Perform rating, suggesting a neutral stance on the stock's near-term prospects. The revised price target and rating take into account the current economic climate and its impact on consumer behavior, which is crucial for Align Technology's performance.
In other recent news, Align Technology disclosed mixed results for its third quarter, with adjusted earnings per share at $2.35, surpassing analyst estimates of $2.31. However, the company's revenue of $977.9 million fell short of the expected $989.59 million.
Looking ahead, Align Technology anticipates a revenue between $995 million and $1.015 billion for the fourth quarter, which is less than the consensus estimate of $1.02 billion.
Evercore ISI, an analyst firm, revised its price target for the company to $250 from the previous $270, while maintaining an Outperform rating. The firm also expressed a more conservative stance for the fourth quarter due to the prevailing macroeconomic conditions.
Align Technology announced a restructuring plan to either eliminate or transfer certain positions globally, expecting to incur about $30 million in restructuring charges in the fourth quarter. Additionally, the company plans to repurchase up to $275 million of its common stock in the fourth quarter of 2024.
These are recent developments in the company's financial performance and strategic plans.
InvestingPro Insights
To complement the analysis provided by Leerink Partners, recent data from InvestingPro offers additional context on Align Technology's financial position and market performance. As of the last twelve months ending Q2 2024, Align Technology reported a revenue of $3.94 billion, with a modest growth of 5.5%. The company maintains a strong gross profit margin of 70.16%, indicating efficient cost management despite 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. Additionally, the stock is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.77, suggesting potential undervaluation based on expected growth.
However, it's important to note that the stock has experienced significant volatility, with a 16.61% decline in the past month and a 33.82% drop over the last six months. This aligns with the analyst's observations about the challenging market conditions affecting the company's performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Align Technology, providing a deeper understanding of the company's financial health and market position.
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