SmileDirectClub Shares Bitten as Results Miss, Analysts Cut Targets

SmileDirectClub SDC shares slumped after the teledentistry platform missed Wall Street's fourth-quarter expectations and analysts slashed their price targets.
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SmileDirectClub (SDC) - Get Report shares slumped after the teledentistry platform missed Wall Street's fourth-quarter expectations and analysts slashed their price targets.

The Nashville provider of direct-to-consumer teeth-straightening equipment reported a net loss of $97 million, or 25 cents a share. Analysts polled by FactSet were calling for a loss of 11 cents a share.

The company reported revenue of $197 million, up 53% from a year ago but short of analysts' expectations of $199.9 million.

At last check the shares were off 26% at $8.37.

SmileDirectClub CFO Kyle Wailes said in a statement that "2020 is a year of significant, albeit controlled growth for SmileDirectClub."

Analysts were not smiling about the company's report.

JPMorgan analyst Robbie Marcus slashed his price target to $16 from $31 while keeping an overweight rating, citing the company's "disappointing" results.

Marcus said the results were driven by a lower-than-expected level of aligner sales, due primarily to manufacturing issues limiting supply and delaying shipments of orders.

In addition, Marcus said the company's 2020 sales guidance was softer than expected at $1 billion to $1.1 billion, compared with expectations for closer to $1.14 billion based on his conversations.

While the results provided a disappointing close to 2019, Marcus said, the issues that stifled fourth-quarter growth are transient, 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."

Jonathan Block, an analyst with Stifel, lowered his price target on SmileDirectClub to $12 from $17.

Block, who affirmed a buy rating on the company, said SmileDirectClub is well positioned to capitalize on the large opportunity in the clear-aligner-aesthetics market for adults at a lower consumer price point. But he added that he has "less conviction" in management's teen and wholesale initiatives.

Nathan Rich, an analyst with Goldman Sachs, lowered his price target to $9 from $10 while keeping a neutral rating.

Rich noted that the company saw steep sequential declines in profitability and cash flow in the quarter, offered a lower-than-expected revenue outlook, and guided for another year of a loss before interest, taxes, depreciation and amortization. 

In addition, Rich said, the company's five-year revenue growth forecast of 20% to 30% also fell short of consensus at 35%.

Jefferies analyst Brandon Couillard downgraded SmileDirectClub to hold from buy with a price target of $10, down from $22.

Couillard said that after the report, he was less confident about SmileDirect's ability to balance growth and profitability. 

He also said he was concerned that the core U.S. market is maturing more quickly than expected.