Turning the Corner at 3D Systems

3D Systems Corporation (TDSC - Snapshot Report) has clearly turned the corner, posting revenue growth in 2007 and turning a profit for the second half of the year. Concerns over the new V-Flash Modeler have pressured the stock and could cause continued volatility through the year.

However, with expectations lowered, we believe the company will successfully execute its rollout throughout 2008. 3D Systems has clearly turned the corner, posting strong revenue growth in 2007 and turning a profit for the second half of the year.

We believe that much of 3D Systems’ future success will hinge on new systems, such as the V-Flash Desktop Modeler, launched in the third quarter of 2007. Although concerns over pace of the rollout of its new V-Flash Modeler have been responsible for a recent decline in the stock price, and could be cause for future concern.

We also believe that despite such concerns, TDSC will successfully execute the rollout through 2008, albeit on a delayed schedule. Moreover, the company has a strong balance sheet as it ended 2007 with net cash (cash less debt) of $1.02 per share versus a negative net cash of $0.57 per share in 2006 with improvement in working capital management.

However, with an extremely competitive environment, the company will be hard pressed to return to strong growth in 2008. We, therefore, maintain our Hold rating on TDSC shares and set our six-month price target to $14.50. This represents a P/S multiple of approximately 1.8x our 2008 revenue estimate of $7.95 per share, a premium valuation to the industry and S&P 500.

Read the full analyst report on TDSC.