Shares of most 3D printing solution providers closed higher yesterday, after the Piper Jaffray analyst – Troy Jensen – wrote in his analyst note that industry demand trends are improving after a long slowdown. However, it was Stratasys Ltd. (SSYS - Free Report) which gained most as the analyst believes that the trend is benefiting this stock more than its rivals.
The stock closed yesterday’s trade 11.6% higher from the previous day, outperforming its biggest rival 3D Systems Corporation’s (DDD - Free Report) intraday gain of just 2.7%. Other small players such as Voxeljet AG (VJET - Free Report) and Proto Labs Inc. (PRLB - Free Report) witnessed marginal gains of 0.4% and 1.1%, respectively.
Citing Piper Jaffray’s survey on 3D printer resellers, Troy, in his note, stated that Stratasys experienced a meaningful uptick in system demand over the last two quarters. Per the analyst, "With data points suggesting near-term execution improvement for both system and materials, industry demand starting to turn positive, an important new product cycle ramp and a compelling valuation, we believe SSYS shares look attractive at these levels." With these comments, Troy provided an Overweight rating on Stratasys and raised its target price to $28 from $21.
On the other hand, the analyst gave an Underweight rating to the company’s biggest rival, 3D Systems and opines, "While 3D Systems is making some improvements, we believe the challenges are still significant and competition is intensifying."
Stratasys’ Turnaround Efforts Paying Off
We believe that Stratasys’ turnaround strategies, which include launching innovative products, strategic partnerships and acquisitions, are paying off. Over the last one year, the company launched various products, including the J750 3D printer – full-color multi-material 3D printer, F123 Series of Rapid Prototyping Solutions, and GrabCAD Print.
Apart from this, it has been noted that the company has been active in entering into partnerships with various companies, across various industries like Schneider Electric, Airbus and The Boeing Co. We believe that these partnerships will enable Stratasys to gain competitive advantage over other players. Moreover, these collaborations will expand and enhance Stratasys’ additive manufacturing technologies or 3D Printing Platform. The associations will also help the company to attract new clients and strengthen its overall market position.
It should be noted that the company, in its last quarterly results, witnessed year-over-year revenue growth after registering decline for several quarters. Stratasys’ revenues not only increased 1.1% year over year to $175.3 million, but also surpassed the Zacks Consensus Estimate of $170 million. The company’s timing of product introductions and improved organizational changes at MakerBot benefitted the quarter’s revenues.
Industry Offers Huge Growth Potential
The 3D printing market presents a favorable long-term investment opportunity, as a large number of engineers, designers, architects and entrepreneurs are resorting to 3D solutions for their primary designing and product modeling.
According to a recent survey by Lux Research, the 3D printed parts space will be an $8.4 billion global market by 2025, led by automotive, medical and aerospace applications. In addition, with lower costs of 3D printing as compared with traditional manufacturing, industries are increasingly adopting the technology in their manufacturing plants.
Data from the Wohlers Report 2014 revealed that the worldwide 3D printing industry is projected to grow from $3.07 billion in 2013 to $12.8 billion by 2018, and exceed $21 billion by 2020, at a CAGR of 34%.
Being the industry leader in 3D printing, Stratasys’ prospects look encouraging, given the aforementioned data and Troy’s recent comment. The company is well poised to bank on every opportunity to grab a large share of this market.
Furthermore, Stratasys currently trades at far off its 2014 high of $130.83. After losing 70.6% and 31% of its value in 2015 and 2016, respectively, the company has been up 43.7% up in this year so far. Having a Zacks Rank #3 (hold) and a Growth Style Score of ‘A’, we believe that the stock provides a good opportunity to investors for quick near-term return.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Nonetheless, entry of technology giants such as HP Inc. and General Electric may pose a threat to Stratasys’ future prospects.
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