Invisalign And iTero Lumina Will Expand Global Reach

Key Takeaways

• Innovative product availability and geographical expansion, particularly in APAC and EMEA, are boosting demand and driving revenue growth.
  
• Strategic investments in DSOs and upgraded scanning systems are advancing practice growth, revenue, and margin expansion.
  
• Competitive pressures, currency fluctuations, and pricing shifts threaten revenue, while reliance on DSOs and tariff uncertainties could impact margins and operational efficiency.

Catalysts

Designs, manufactures, and markets Invisalign clear aligners, Vivera retainers, and iTero intraoral scanners and services in the United States, Switzerland, and internationally.

• The continued strength and year-over-year growth in Clear Aligner volumes, particularly in the Asia Pacific (APAC), Europe, Middle East, and Africa (EMEA) regions, as well as North America, are expected to drive increased revenue.
  
• The commercial availability of innovative products such as the Invisalign Palate Expander System and the Invisalign system with mandibular advancement is likely to boost demand and enhance earnings.
  
• Expansion in the dental service organizations (DSOs) channel is creating opportunities for practice growth and increased adoption of Invisalign, potentially improving revenue growth and margin expansion.
  
• The launch of the iTero Lumina scanner with restorative software and continued upgrades are expected to drive future revenue growth in the Systems & Services segment.
  
• The expansion of manufacturing capabilities and geographical presence, particularly with new regulatory clearances, is set to mitigate the impact of tariffs and foreign exchange, supporting stable or improved future earnings.

Align Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Align Technology's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.3% today to 15.4% in 3 years time.
• Analysts expect earnings to reach $727.2 million (and earnings per share of $9.93) by about May 2028, up from $409.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, down from 30.9x today. This future PE is lower than the current PE for the US Medical Equipment industry at 30.3x.
• Analysts expect the number of shares outstanding to decline by 2.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Align Technology Future Earnings Per Share Growth

Risks

• The company's revenues and operating margins were negatively impacted by foreign exchange rates, which could continue to be a risk if currency fluctuations remain unfavorable. This impacts overall revenue and net margins.
  
• There has been a decrease in Clear Aligner average per case shipment price, driven by product mix shifts to lower-priced products and discounts, alongside unfavorable foreign exchange, which could affect revenue and earnings.
  
• Tariff uncertainties, particularly relating to manufacturing in different regions, could impose additional costs or logistical complexities, potentially impacting net margins and operational efficiency.
  
• Competitive pressures in key markets such as China could lead to pricing challenges and reduced market share, impacting revenue growth and profit margins.
  
• Continued reliance on DSOs for growth may introduce risks associated with these organizations' financial health and market strategies, possibly impacting revenue consistency and future earnings.

Valuation

• The analysts have a consensus price target of $230.103 for Align Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $275.0, and the most bearish reporting a price target of just $150.54.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $727.2 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $173.07, the analyst price target of $230.1 is 24.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.