Align Earnings: Tough End-Market Slows Growth but Cheap Shares Could Leave Patient Investors Smiling

Narrow-moat Align Technology reported third-quarter earnings that came in slightly below our expectations. Total sales of $978 million was up 1.8% year over year but fell short of our $995 million estimate and the low end of last quarter’s guidance range, $980 million-$1,000 million. The US dental market remains sluggish, and patient flow is still suppressed, impeding Align’s end-market recovery despite improving macroeconomic conditions. We think the challenged environment will likely be in place throughout the rest of the year, and Algin’s top and bottom lines will be hindered. Against the backdrop of difficult market dynamics, Align announced a global restructuring plan that would affect about 3% of the firm’s headcount. While this comes with operating costs that pull back fourth-quarter margins, we think it can unlock long-term cost savings and help to expand margins. After slightly pulling back our full-year assumptions, we trim our fair value estimate to $296 per share from $300.