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Stratasys (SSYS) Spins Off Evolve and Vulcan Labs Units

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Stratasys Ltd. (SSYS - Free Report) recently announced that it has spun off two of its additive manufacturing units that deal with different applications and technologies of 3D printing.

One of the units, Vulcan Labs will work on advancement of Powder-Bed Fusion (PBF) additive manufacturing with a focus on improving efficiency of the same and solve certification related issues, primarily related to metals.

The other one, Evolve Additive Solutions will deal with Selective Electrophotographic Process (STEP) technology. This project was in an incubation phase for around 10 years and is currently in the process of hitting the market with its unique capability of producing higher volume in a short span of time.

Notably, both the companies will operate as subsidiaries of Stratasys. We believe this decision of separating the two entities will ensure focus on both the divisions. This in turn will lead to the advancement of the solutions and products and result in revenue generation.

Strategic Initiatives

Stratasys, on the back of product launches and strategic partnerships, is trying to excel in the 3D printing industry, which is anticipated to witness CAGR of 25.76% from 2017 to 2023 and reach $32.78 billion.

In February 2018, it announced a partnership with the USA Luge team, marking its entry into the sports industry. The luge team deployed Stratasys’ “applied additive technology solutions” for manufacturing customized racing sleds for athletes participating in the 2018 Winter Games.

The company is already a leader in aerospace and automotive industries. Its partnerships with the likes of Schneider Electric, The Boeing Company (BA - Free Report) , Ford Motor Company (F - Free Report) , Siemens, Boom Supersonic and United Launch Alliance have expanded its geographic reach and market penetration.

Additionally the company’s efforts in reducing operating expenses will also be beneficial for financials going forward. It recorded operating margin of 7.6% in the fourth quarter compared with 6.6% in the year-ago quarter.

Headwinds Remain

Though the company managed to keep a check on operating expenses and margin, a declining gross margin is a concern. Driven by incremental sales generated from lower-margin products of acquired businesses including MakerBot, Solid Concepts and Harvest Technologies, Stratasys witnessed gross margin decline in each of the four quarters of 2017.

With a declining gross margin and continued investment in marketing and R&D, we are apprehensive about the company’s operating results going ahead.

Stratasys has a Zacks Rank #4 (Sell).

A better-ranked stock in the broader technology sector is Micron Technology, Inc. (MU - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS growth rate for Micron is 10%.

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