Strong performance by Align Technology (ALGN) during the last quarter was driven by robust growth of the Invisalign system, which led to growth in revenues and case shipments.
Although the tough competitive scenario has led to decline in product prices, we believe that the company is well placed to take advantage of the under-penetrated malocclusion market. However, Align has witnessed greater penetration, leading to market share gain in the teenage market, which holds immense potential.
Given these factors, we upgrade the stock to Outperform. Viewing the advantages associated with Invisalign and the strong untapped potential of the malocclusion market, we set a target price of $24.00, which is based on 27.3X our 2011 EPS estimate of $0.88.