Align Faces Potential Headwinds in Concerns About Inflation and Recession; No Change to Our FVE

Align Technology saw slowing growth in its latest quarter that generally adheres to the broad outlines of what we’ve been expecting in 2022—moderation from the pandemic-fueled record-breaking growth seen last year. The slight adjustments we’ve made to our full-year projections weren’t material enough to shift our fair value estimate. Second-quarter revenue fell 4% year over year, though we recognize the excessively strong performance from the prior-year period makes for a very challenging comparison. More important, quarterly revenue declined just shy of flat on a sequential basis. If we see a similar dynamic in the third quarter, we’d likely revisit our assumptions for the second half of 2022 and next year. Fortunately, profitability has remained resilient and consistent with our projections. We saw little in the quarter to change our thinking on Align’s switching costs that support its narrow economic moat. If anything, continued strength in the placement of its iTero scanners bodes well for adoption of Invisalign over the long haul.