Stifel does not believe stepping to the sidelines at about $9 is the right near-term move
Shares of SmileDirectClub (SDC) are sliding on Wednesday after the teledentistry company reported worse than expected fourth quarter results. Following the announcement, Jefferies analyst Brandon Couillard downgraded the stock to Hold while several other Wall Street analysts cut their price targets on the name, with JPMorgan analyst Robbie Marcus nearly halving SmileDirectClub target after the "disappointing" results.
RESULTS: On Tuesday after market close, SmileDirectClub reported fourth quarter losses per share of EPS (25c) and revenue of $197M, both below consensus of (9c) and $199.93M, respectively. The company also announced unique aligner shipments of 115,042 for the quarter, compared to 76,372 in the fourth quarter of 2018. Additionally, the company reported average aligner gross sales price of $1,771 for both the fourth quarter and fiscal year 2019.
SmileDirectClub said it sees fiscal year 2020 revenue between $1B-$1.1B, with consensus at $1.14B, and fiscal year 2020 adjusted EBITDA of ($50M)-($75M). "2020 is a year of significant, albeit controlled growth for SmileDirectClub. Our number one priority is to improve our club member experience. We will also increase our focus on the international infrastructure we have already built to best position our business for long-term global growth. Profitability will also be a big focus for us in 2020, and we understand the levers we have to pull to achieve profitability," said SmileDirectClub CFO Kyle Wailes.
MOVING TO THE SIDELINES: Following a weak fourth quarter and fiscal year 2020 guidance that also came with a "material reset" to its mid-term growth outlook, Jefferies analyst Brandon Couillard downgraded SmileDirectClub to Hold from Buy and lowered his price target on the shares to $10 from $22. The analyst is now less confident about SmileDirect's ability to balance growth and profitability and is also concerned that the core U.S. market is maturing faster than expected.
PATH TO UPSIDE IN 2020: Citing "disappointing" fourth quarter results, JPMorgan analyst Robbie Marcus nearly halved his price target on SmileDirectClub to $16 from $31 but kept an Overweight rating on the shares. Though a disappointing close to 2019, he believes the issues that stifled fourth quarter growth are transient in nature due to manufacturing, rather than a demand issue. He also sees paths to upside in 2020 as SmileDirectClub "continues to enter high-growth, low-penetration international markets, expands its portfolio of products, and enters new channels."
Also keeping a Buy rating on the stock, Bank of America analyst Michael Ryskin lowered his price target on SmileDirectClub to $12 from $19, noting that during the quarter the company was "plagued by a number of issues" such as manufacturing troubles leading to delays in aligner shipments, under-utilization of its SmileShop network, and spending that outpaced revenue growth.
Meanwhile, Stifel analyst Jonathan Block cut SmileDirectClub's price target to $12 from $17. A future financing action "does not seem entirely off the table," said Block, although he does not believe stepping to the sidelines at about $9 is the right near-term move. He keeps a Buy rating on the stock, as he believes SmileDirectClub is in a good position to capitalize on the large opportunity in the Adult clear aligner aesthetics market at a lower consumer price point, though Block admits that he has "less conviction" in management's Teen and Wholesale initiatives.
In a post-earnings research note, Loop Capital analyst Laura Champine also lowered her price target for SmileDirectClub to $15 from $20 but maintained her Buy rating on the stock longer term, anticipating the company to turn profitable on adjusted EBITDA basis in the quarter and for its margins to ramp up quickly.
PRICE ACTION: In afternoon trading, shares of SmileDirectClub have dropped over 26% to $8.27.