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On Friday, HSBC analysts downgraded Align Technology (NASDAQ:ALGN) stock from a Buy to a Hold rating, significantly reducing the price target from $290.00 to $170.00. The adjustment comes as the stock, currently trading at $184.27, has seen a 7.5% gain over the past week despite being down 11.6% year-to-date. According to InvestingPro data, six analysts have recently revised their earnings estimates downward for the upcoming period. The adjustment was made based on a revised valuation method that accounted for increased risk and reduced growth estimates.
The new price target of $170.00, down from the previous $290.00, reflects changes in the weighted average cost of capital (WACC) and the firm’s projections. HSBC now applies a WACC of 10.4%, up from 8.0%, and a cost of equity of 11.2%, increased from 8.90%. These figures are based on a steady risk-free rate of 3.75% and an unchanged equity risk premium of 4.25%. The stock currently trades at a P/E ratio of 32.6x, which InvestingPro analysis indicates is relatively high compared to peers.
In their assessment, HSBC analysts have introduced an additional equity risk premium (ERP) of 150 basis points to the WACC calculation. This premium includes a 50 basis point MedTech premium and a 100 basis point premium due to macroeconomic uncertainty and tariff risks. Previously, no such additional premium was factored into the calculations.
The updated analysis by HSBC also takes into account a beta derived from LSEG DataStream, which has been adjusted to 1.3 from the previous 1.2. The additional 100 basis point risk premium is attributed to heightened concerns over a potential recession and Align Technology’s dependency on non-US manufacturing for its US sales.
The revised target price suggests a roughly 2% downside from the stock’s recent trading levels, leading to the downgrade to a Hold rating. HSBC points out that short-term growth visibility for Align Technology remains weak, prompting the more cautious stance on the stock. Despite these concerns, InvestingPro data shows the company maintains a GOOD financial health score, with particularly strong profitability metrics. For deeper insights into Align Technology’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Align Technology has been the focus of several analyst assessments and product announcements. Piper Sandler maintained an Overweight rating with a $235 price target, noting a mixed performance in the first quarter with a 6.0% decline in clear aligner volumes, particularly affecting the teen demographic. Stifel analysts upheld a Buy rating with a $275 target, expressing optimism due to stable expectations for Invisalign case volumes despite market challenges. Mizuho (NYSE:MFG) Securities reiterated its Outperform rating, adjusting its price target to $250 due to tariff impacts and competitor performance, while still showing confidence in Align’s ability to manage external challenges.
Align Technology also announced the release of a new Invisalign product featuring advancement blocks aimed at correcting Class II malocclusions in younger patients, leveraging their growth phases for improved outcomes. This product is now available in Australia and New Zealand, with a limited release in North America and EMEA countries, and a broader introduction planned for 2025. Mizuho noted potential tariff impacts on Align’s operations, highlighting exemptions for USMCA-compliant goods and new tariffs on iTero scanners. Despite these developments, Mizuho maintained its projections, indicating confidence in Align’s strategic positioning.
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