Align Technologies and Envista Holdings are two major players in the dental industry, each with their unique strengths and challenges. While Align has been offering clear dental aligners as an alternative to traditional braces for over 20 years, Envista distributes a portfolio of more than 30 global brands, including dental implants, surgical equipment, biomaterials, imaging tools, and orthodontic devices. Despite both companies operating in the same industry, there is a significant disparity in their valuations, with Align’s market cap being significantly higher than Envista’s. In this article, we will analyze the strengths and challenges of each company and provide insights into which may be a better investment opportunity.
Align Technologies and Envista Holdings
Align Technologies (ALGN 0.91%) has been offering clear dental aligners as an alternative to traditional braces for over 20 years. Envista Holdings (NVST 1.58%) was spun out from parent company Danaher (DHR 0.96%) last September following an initial public offering.
Envista distributes a portfolio of more than 30 global brands, including dental implants, surgical equipment, biomaterials, imaging tools, and orthodontic devices, including recently announced clear aligners culled from 25 acquisitions over the last 15 years.
Align’s business model is straightforward. It supplies imaging technology and services to dentists and orthodontists all around the world, in addition to its famous Invisalign dental aligners.
Because of the variety of products it sells, Envista’s business is more complex. Yet, the company boasts that 90% of dentists’ offices stock its products, making it a powerful dental supplier. Which of these two dentistry behemoths’ stocks is a better buy right now?
Why is there such a disparity in valuation?
The $22.1 billion valuation of Align eclipses Envista’s $5.1 billion market cap. Why?
For one thing, because Envista is a new stock, its management must cultivate ties with institutional investors. This is the time to raise the team’s profile and reputation, as well as to help investors grasp the business’s dynamics.
Second, Envista provides a range of dental office tools and products, including lower-margin supplies. Align is only focused on higher-margin aligners and the scanners required to make them.
Consequently, Envista earned $161.5 million in net income on $2.03 billion in sales in the first nine months of 2020, while Align earned $321.5 million on $1.76 billion in sales. Envista earned 8% of sales in percentage terms, whereas Align earned 18.3%. Envista’s management boasts a move in product mix toward higher-margin specialist products, but investors will have to wait and see how that pans out.
Third, because of its acquisition history, Envista confronts extra operational issues. Envista’s management stated at the recent JP Morgan Healthcare Conference that it was decreasing operational complexity, footprint, and cost structure by reducing the number of brands, consolidating physical sites by more than 35%, and dramatically reducing the number of suppliers. This should result in annual cost savings of $60 million.
Fourth, Align consistently outperforms analyst earnings projections. The business anticipates fourth-quarter sales of at least $640 million. Add to that the $1.76 billion in revenue generated in the first nine months of 2021.
For $2.4 billion, clear aligners and accompanying imaging equipment were sold. This is massive when compared to Envista’s basket-of-products strategy for a variety of dental and orthodontic needs.
What will the stock market do?
Envista’s stock history is limited because it only began trading at the end of September. The ten analysts that cover it have price goals ranging from $30 to $37 per share, with a consensus of $33.50. The current price of $32.58 does not leave much room for expansion.
Analysts’ price targets for Align range from $220 to $363 per share, with a consensus of $305. With the current price of $266, hitting the median implies a 14.7% return. Analysts, however, have varying perspectives on Align’s prospects. Those with price goals at the low end of the range expect the company will face challenges.
The negative argument focuses on the termination of the collaboration with SmileDirectClub (SDC -4.13%), which stated its intention to compete with Align by selling clear aligners directly to dentists and orthodontists.
What will the future bring?
Align will continue to dominate the clear-aligners market with Invisalign, possibly the most well-known product. Increasing demand for Invisalign, particularly from abroad markets, is expected to contribute the majority of revenue increase. Some investors may be concerned in the short run until more information about SmileDirectClub’s new endeavor to compete with Align becomes available.
Envista’s split from Danaher was marketed as allowing the dental industry to expand through other acquisitions. Management brags about increased cash flows to promote merger and acquisition activities. The company’s website and recent presentations highlight priority areas for potential acquisitions. Therefore, before purchasing the shares, buyers should obtain clarification on the approach.
Align Technologies and Envista Holdings are two major players in the dental industry, each with their unique strengths and challenges. While Align’s focus on higher-margin aligners and imaging technology has contributed to its impressive financial performance, Envista’s wider range of dental products and tools has enabled it to establish a strong presence in the industry. However, as a newer stock, Envista faces operational challenges and the need to establish its profile and reputation with investors. Ultimately, investors looking to invest in the dental industry should carefully consider the respective strengths and challenges of Align and Envista, as well as the potential impact of market trends and competitive pressures on each company’s future performance.
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