3D Systems Staying Confined

3D Systems Corporation (TDSC - Snapshot Report) is a provider of rapid 3-D printing, prototyping, and manufacturing solutions. Rapid prototyping is the automatic construction of physical objects using solid freeform fabrication.

In the third quarter, 3D Systems Corporation’s revenue was $35.6 million, down 6.9% from $38.2 million reported in the year-ago quarter as well as below our expectation of $38.6 million in revenue.

After posting strong revenue growth in 2007 and turning a profit in the second half of the year, 3D Systems posted disappointing results in the first three quarters of 2008. Results have been well below ours and consensus forecasts, which TDSC blamed on lower product unit sales of large-frame rapid manufacturing systems and the unfavorable combined effect of price and mix due to the softness in the U.S. demand.

Although we believe that much of 3D Systems future success will hinge on new systems, such as the V-Flash Desktop Modeler, the company does not anticipate the V-Flash Desktop Modeler to be a material revenue contributor during 2008. Moreover, 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. Our six-month price target of $9.50 represents a P/S multiple of approximately 1.3x our 2009 revenue estimate of $7.51 per share, a premium to the industry mean but a discount to the S&P 500.

Anita Mohata contributed to the report.

Read the full analyst report on TDSC