The firm is making steady headway in certain high-value sectors, including the broader healthcare vertical and in direct metal parts printing.
By David Silver, CFA, CPA | 12-13-16 | 06:00 PM | Email Article

Leading 3-D printer  3D Systems' improved third-quarter results reflected modest sales growth and strong expense control as new management sharpens its strategic focus amid sluggish industrial demand and significant ongoing industry uncertainty tied to anticipated new product introductions. New CEO and former senior Hewlett Packard executive Vyomesh Joshi further articulated his longer-term strategic priorities, including a shift in emphasis from prototyping to production, a customer–focused operating model, and attaining operational excellence.

David Silver, CFA, CPA, is a senior equity analyst for Morningstar.

We raised our fair value estimate to $16 per share from $15, a still-modest valuation that reflects mainly signs of revenue stability and greater clarity for cash expenses and operating cash flow. The firm is making steady headway in certain high-value sectors, including the broader healthcare vertical and in direct metal parts printing. It also continues to commercialize new printers and related products--steps we deem essential to maintain competitiveness in a fast-evolving industry.

Quarterly results included some early signs of stability, if not growth. Revenue of $156 million rose 3% year over year and fell 1% sequentially. Printer sales fell 6%, while sales of high-margin consumables rose 9%. New CFO John McMullen (who formerly worked with Joshi at HP) noted “lumpy” demand patterns during the quarter and expects a different revenue mix during the second half of 2016. Adjusted EPS of $0.14 excludes $37 million in aftertax non-GAAP adjustments ($0.33 per share), including $10 million in stock-based compensation.

Management provided limited financial guidance. We forecast a 2% revenue decline to $650 million in 2016, mainly due to slower printer sales as a result of uncertainty created by the approaching launch of HP’s Multi Jet Fusion printers. Growth in materials and software partly offset lower printer and Quickparts (on-demand parts) revenue.

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David Silver, CFA, CPA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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