Medical Device Co. Align Technology Has Clear Upside, Says Leerink

• Shares of Align Technology, Inc. ALGN have declined by almost 12 percent in the last three months.
• Leerink’s Richard Newitter has initiated coverage of Align Technology with an Outperform rating and price target of $70.
• Newitter believes that the company has a robust growth runway that could drive higher penetration of the 2.6 million worldwide addressable opportunity.

According to the Leerink report, not many small and mid-cap medical tech companies can boast the potential for double digit topline growth, along with gross margin of 75 percent and operating margin expansion.

Newitter expects the company to be able to increase penetration of the worldwide market with increasing use of its market leading alternative to traditional braces. “Invisalign is a technology we think is significantly underpenetrated relative to its LT potential,” Newitter stated.

Invisalign is expected to continue to see increased use by general practitioners of dentistry and orthodontists for the treatment of malocclusion. With more than 80 percent market share, Align Technology is the category leader and appears “well-positioned to capitalize on & accelerate clear aligner adoption,” the report said.

Newitter estimates the revenue CAGR for 2015-2017 at 17 percent, with the company penetrating deeper and broader into its core orthodontist and general practitioner channels. EPS growth is expected to outperform sales growth during the same period, driven by expense leverage, share buybacks and “rep efficiency.”

Given that Align Technology has posted year on year acceleration in case volume growth for three consecutive quarters, the company’s ongoing utilization investments appear to be bearing fruit.

In addition, Leerink’s recent MEDACorp poll suggests that the North American Invisalign expectations could prove to be conservative.