1. JPMorgan: "We see a clear path to sustained top-line growth."
Rating: Overweight
Price target: $31
"As brand awareness continues to build and the company achieves scale, we see a clear path to sustained top-line growth at an almost 50% 2018-23 CAGR, which we view as conservative," wrote JPMorgan analysts led by Robbie Marcus.
"SmileDirectClub retains control over the entirety of the care process, from marketing to manufacturing, order fulfillment, financing, and patient monitoring over the course of treatment. Bringing these functions in- house allows the company to maintain control of the member journey, contributing to sustained profitability, which we see the company reaching in 2021 with its first full year of positive earnings and FCF (free cash flow.)"
2. Guggenheim Securities: "We believe there is still a long runway."
Rating: Buy
Price target: $24
"SmileDirectClub is in the early innings of growth, disrupting the traditional orthodontics market by providing a cheaper, more aesthetically pleasing alternative to brackets and wires," wrote Guggenheim analysts led by Glen Santangelo.
"The company has generated substantial growth since it was founded in 2014, and we believe there is still a long runway."
"Around 85% of people worldwide have some degree of malocclusion, but less than 1% of those people receive treatment. Brackets and wires have traditionally been the treatment of choice for orthodontists, but SmileDirect is aiming to change that by providing effective and affordable clear tray aligner treatment. Given the growth that SDC has already experienced, it believes that there is a long runway for growth that includes a total addressable market of ~$945B (or 500M people globally), with just ~25% of that coming from the United States."
3. Bank of America: "We are bullish on the story."
Rating: Buy
Price target: $19
"We are bullish on the story and see a long runway of continued strong sales growth (44% sales CAGR through 2023) as the company is poised to benefit from a leadership position in a vastly underpenetrated TAM (total addressable market)," wrote a team of analysts led by Michael Ryskin at Bank of America Merrill Lynch.
"In our view, there are two primary areas of pushback or concern on the stock: competition and legal/regulatory overhang. On competition, the question is how SDC can stay ahead of other clear aligner direct-to-consumer companies given the large number of 'me-too' start-ups and the lack of an I.P. moat. On the legal and regulatory debate, there are a number of on-going legal disputes (and the potential for more), with several state dentistry boards and dental associations attempting to squeeze SDC out of the market by alleging that SDC's tele-dentistry approach is fundamentally unsafe, while there are patients that are raising red flags on unsatisfactory treatment results."
4. Credit Suisse: Innovation and international expansion are "areas of upside."
Rating: Outperform
Price target: $18
"Continuing marketing efforts should drive heightened awareness, as well as other competitive advantages in relative convenience, expanded access to care, and lower cost relative to traditional peers (~60% avg. discount)," wrote a group of analysts at Credit Suisse led by Erin Wilson Wright.
"Moreover, its partnerships with CBS, Walgreens, and other international retailers allow SCD to expand and further optimize its SmileShop footprint in a capital efficient manner (CS est. +100 stores/ yr), while SDC's in-house financing service will address cost as a key barrier for penetration (used by 65% of customers.)
"We also highlight drivers in innovation and further international expansion, which represent areas of upside to our current expectations."
5. Jefferies: "Penetration is still in the very early innings."
Rating: Buy
Price target: $22
"SDC pioneered the multi-billion dollar DTC (direct-to-consumer) clear aligner market and has maintained 90%+ market share despite many copycat competitive entrants," wrote a team of analysts at Jefferies led by Brandon Couillard. "We struggle to find many/any other healthcare companies (non-therapeutics) that have scaled as fast as SDC (from $0 to ~$1B of revenue in 4-5 years), though penetration is still in the very early innings (<1%)."
"Unlike many competitors, SDC is vertically integrated, managing every step of the user experience, from marketing to aligner manufacturing, customer financing, fulfillment, treatment monitoring, and completion of treatments. This is enabled by SDC's proprietary teledentistry platform ('SmileCheck'), allowing it to improve customer service, drive better margins, and higher conversion rate."
6. UBS: "SDC has demonstrated prowess in marketing and manufacturing"
Rating: Buy
Price target: $24
"The stock has fallen 36% since it debuted September 11, with investor concerns about 3Q operational issues that impacted revenue growth and new regulatory risks in CA weighing on sentiment," wrote Kevin Caliendo of UBS.
"When the company reports 3Q earnings on November 12th, we believe we will get visibility on growth when management can explain the magnitude and duration of the issues. We think it could take a couple months to see if and/or how the new legislation will impact SDC's operations."
"We believe SDC has demonstrated prowess in marketing and manufacturing that has created a meaningful first-mover advantage in the DTC clear aligner market. We think the US alone could be a $70B market opportunity for SDC based on what we believe is visible TAM of 40M adults. Our estimates suggest SDC could penetrate up to 15% of the US market combined over the next four years, leading to ~$3B in revenues in 2023."
