SmileDirectClub, Inc. has been gaining from its continued innovation in the oral care industry. The company’s product launches, including the SmileOS software and a fast-dissolving whitening strip, buoy optimism. Its strategic partnerships with notable retail stores throughout the country are other upsides. However, stiff competition and dull revenues raise apprehension.

Over the past year, the Zacks Rank #3 (Hold) stock has declined 79.8% against a 12.2% rise of the industry and 13.4% rally of the S&P 500.

The renowned oral care company has a market capitalization of $822.79 million. Its loss of 25 cents for the fourth quarter of 2021 was narrower than the Zacks Consensus Estimate of a loss of 28 cents.

The company projects 28.1% growth for the next five years, compared to the industry’s projected growth rate of 13.8% and the S&P 500’s estimated 11.3% growth.

Image Source: Zacks Investment Research

Factors At Play

Q4 Upsides: SmileDirectClub’s fourth-quarter 2021 adjusted loss was narrower than the Zacks Consensus Estimate. A series of cutting-edge innovations, strategic distribution and insurance partnerships instills optimism. The company’s continued investments to influence consumer decision-making and penetrate new demographics seem strategic. In its fourth-quarter earnings call, SmileDirectClub also noted that currently, it has 30 patents issued for innovation, which is an added positive.

Innovations Aid Growth: We are encouraged by SmileDirectClub’s continued focus on developing products that further differentiate its offerings in the oral care industry. During its fourth-quarter earnings call, SmileDirectClub noted the launch of its innovative fast-dissolving whitening strip, which offers a new and convenient way to achieve fast-whitening results. The company's other whitening innovations of late include the Wireless Pro Whitening system and Stain Barrier. The company also launched its next-gen proprietary treatment planning software SmileOS that delivers enhanced treatment outcomes, predicts tooth movement with greater accuracy and allows doctors to visualize patient treatments better.

Strategic Alliances Boost Growth: SmileDirectClub’s slew of strategic collaborations raise optimism. In terms of retail partnership, SmileDirectClub’s oral care products are now available at more than 12,500 retail stores nationwide, including Walmart, CVS, Walgreens, and Sam's Club. These partnerships aim to serve a highly efficient lead source and brand-building opportunity. In February 2022, the company teamed up with Carestream Health to use their cutting-edge intraoral scanners across Smile Shops and partner network locations. In terms of corporate and insurance partnerships, SmileDirectClub’s existing partners are Allianz, Anthem BCBS, Empire BCBS, United, and Aetna, among others.

Downsides

Dull Sales Scenario: SmileDirectClub exited the fourth quarter with lower-than-expected revenues. The company saw a year-over-year decline in revenues in the reported quarter due to lower unique aligner shipments. The company also recorded year-over-year declines in both net and financing revenues.

Leveraged Balance Sheet: SmileDirectClub’s total debt-to-capital of 122.2% at the end of the fourth quarter stood at an extremely high level. It represented a significant rise from 106.6% at the end of the third quarter.

Tough Competitive Landscape: SmileDirectClub competes with a handful of smaller companies that collectively have limited market share in the clear aligner industry. With the introduction of the company’s collaborative and wholesale partner network, it also faces competition from more well-established competitors in the traditional orthodontic industry, which requires in-person visits.

Estimate Trend

Over the past 30 days, the Zacks Consensus Estimate for SmileDirectClub’s 2022 loss has moved north by 9 cents to 57 cents.

The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $616.4 million, suggesting a 3.3% fall from the 2020 figure.

Zacks Rank & Other Key Picks

A few other top-ranked stocks in the broader medical space are Henry Schein, Inc. (HSIC Quick QuoteHSIC - Free Report) , Owens & Minor, Inc. (OMI Quick QuoteOMI - Free Report) and AmerisourceBergen Corporation .

Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Henry Schein has outperformed the industry over the past year. HSIC has gained 34.1% compared with the industry’s 12.2% rise over the past year.

Owens & Minor has a long-term earnings growth rate of 23.6%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It carries a Zacks Rank #2 (Buy).

Owens & Minor has outperformed the industry over the past year. OMI has gained 23.3% against a 12.7% industry decline in the said period.

AmerisourceBergen has a long-term earnings growth rate of 8.2%. In the trailing four quarters, AmerisourceBergen’s earnings surpassed estimates in three and missed in one, delivering an average surprise of 2.3%. The stock currently sports a Zacks Rank #2.

AmerisourceBergen has outperformed its industry in the past year, gaining 34.7% versus the industry’s 12.2% rise.