Last week was pretty rough for 3D printing stocks after some major players lowered their 2014 guidance. Then Credit Suisse (CS - Snapshot Report) added fuel to the fire on Jan 21 by simultaneously downgrading 3D Systems Inc. (DDD - Analyst Report) to Neutral from Outperform and upgrading its peer Stratasys Ltd. (SSYS - Analyst Report) to Outperform from Neutral. Following this news, shares of 3D Systems tumbled 5.4% to close at $85.63 while that of Stratasys moved up 2.4% to $123.45.
Credit Suisse cited valuation as the primary reason for 3D Systems’ downgrade. The brokerage firm pointed out that 3D Systems was valued at a premium compared to Stratasys which was not justified, given the leadership position of the latter in 3D printing, especially after its acquisition of MakerBot.
Credit Suisse foresees lower-than-expected earnings from 3D Systems for the fourth quarter due to the company’s higher research and development costs from the recent acquisition of Xerox, higher integration costs and increased selling and marketing expenses.
Further, 3D Systems’ Zacks Rank #3 (Hold) and earnings ESP of 0.00% makes a surprise prediction difficult. On the other hand, the firm believes that Stratasys’ upbeat revenue guidance and expected strong organic growth positions it well for an outperformance. Further, synergies from its MakerBot and Objet acquisitions are likely to contribute significantly to the bottom line, going forward.
The choppiness in trade seen last week resulted from guidance cuts by some companies. The major sell-off took place on Tuesday after The ExOne Company (XONE - Snapshot Report) lowered its fiscal 2013 revenue guidance and Stratasys slashed its 2014 guidance fearing higher operating expenses from incremental investments in sales & marketing, and research & development.
In 2013, Stratasys, 3D Systems and ExOne generated returns of 45.4%, 115.1% and 114.4%, respectively, but have already seen a decline of 8.3%, 4.7% and 9.1% in 2014, year-to-date. Another recently-listed 3D printing company Voxeljet (VJET - Snapshot Report) was down 5.4% year-to-date.
As such the 3D printing companies operate with a high-cost structure and any sort of disruption in the top line is likely to impact their overall results. Moreover, 3D printing is a relatively new concept and is likely to take time to gain popularity.
Nonetheless, the 3D printing market presents a favorable long-term opportunity as a large number of engineers, designers, architects and entrepreneurs are resorting to 3D solutions for their primary designing and product modeling. We therefore think that the adoption rate and cost control measures will be important factors determining the fortunes of these companies.