The Israel based Stratasys (NASDAQ:SSYS) has performed poorly at the stock markets, but it could be the best 3-D printing stock available right now.
Shares of Stratasys have struggled this year, dropping by more than 23% so far. The company has, however, outperformed its peers 3D Systems (NYSE:DDD), ExOne (NASDAQ:XONE) and Voxeljet AG (NYSE:VJET) which are down 47.6%, 51.3% and 58.9% on a year-to-date basis.
The two industry leaders, Stratasys and 3D Systems, have lost billions in market value, but this isn’t stopping the two from undertaking acquisitions. Both companies have significantly grown their revenues and improved their bottom lines. Moreover, Stratasys and 3D Systems will likely continue growing on the back of higher 3D printing expenditure.
- Warning! GuruFocus has detected 3 Warning Signs with SSYS. Click here to check it out.
- SSYS 15-Year Financial Data
- The intrinsic value of SSYS
- Peter Lynch Chart of SSYS
Both companies are trading at similar multiples of their trialing sales. Stratasys, however, is more undervalued on account of a lower PEG ratio. Stratasys has a five-year PEG ratio of 1.84 compared to 3D Systems’ 2.57. Moreover, Stratasys has built a solid foundation for future revenue streams with an industry leading global install base.
Analyst at JPMorgan believe that Stratasys is on track to meet market's expectations for 2014. The investment bank has set a price target of $130 on the stock, which represents a potential upside of nearly 30% from the current levels.
Stratasys is continuing with its acquisition spree. The company is planning to purchase some assets of Interfacial Solutions, which provides production and thermoplastics services to the plastic industry.
Stratasys itself has also been a client of Interfacial Solutions for the last three years. The transaction is expected to close in the second quarter of the current year. With this acquisition, Stratasys will strengthen its R&D competences and improve its production capacity.
Stratasys will also acquire two companies, Solid Concepts and Harvest Technologies to enhance its service offering to the healthcare, aerospace and automotive industries. The two companies will now work under rapid prototyping and additive manufacturing services division of Stratasys, known as RedEye.
Meanwhile, the company’s biggest rival 3D System has acquired Medical Modeling, a provider of patient-specific medical devices and surgical treatments.
Furthermore, speculations abound that the company might acquire the Belgium based 3D-printing company Materalise. The latter, which is a provider of 3D printing software licenses to more than 4,000 clients, is gearing up for a $125 million initial public offering in the United States. The company has been operating for more than 2 decades and has an impressive portfolio of customers, which include Airbus, Ford (NYSE:F) and Boeing (NYSE:BA). Moreover, both Stratasys and 3D Systems are also its clients.
Stratasys: Performance Summary
In its fourth quarter, Stratasys reported a 118% year-over-year growth in net sales to $155.09 million while organic revenues climbed 36%. Excluding the unusual impact of a major acquisition (on pro-forma basis), the revenues were up 61.6% while net loss fell to $1.99 million, or $0.07 per share, from $3.52 million, or $0.09 per share in the same quarter of 2012..
The company’s adjusted earnings went up by $0.10 per share from the prior year to $0.50 per share. This was better than analysts’ expectations of a profit of $0.49 per share from revenues of $151.03 million, as per data compiled by Thomson Reuters. Analysts’ estimates typically exclude one-off items and therefore correspond with the adjusted earnings.
During the quarter, MakerBot, which Stratasys acquired last year, contributed $24.9 million to revenues. The acquisition has enhanced Stratasys’s foothold in the desktop category.
For the fiscal year 2014, Stratasys has forecast revenues of between $660 million and $680 million, which is better than market’s expectation of $656.8 million.
On the other hand, analysts were expecting adjusted earnings of $2.33 per share but the company has forecast profit of between $2.15 and $2.25 per share. The company is eying growth in its operating costs on the back of an increase in sales and marketing expenses.
Positioned for Growth
Stratasys has allocated between $50 million and $70 million as capital expenditure, a large portion of which will flow towards the developments of its manufacturing capacity.
In this industry, a strong base of installed machines leads towards recurring revenue streams in the future in the form of material and service contracts. In these terms, Stratasys is in an excellent position.
In the previous quarter, Stratasys sold a little less than 11,000 machines. The company has more than 75,000 printers installed all over the world. The company dominates 47% of the global install base, which is an industry leading number.
3D Systems: Performance Summary
In the meantime, 3D Systems posted year-over-year revenue growth of 52% and organic revenue growth of 34% to record levels of $154.8 million. Unlike Stratasys, 3D Systems has been profitable. During the previous quarter, its net income went up by 2.9% to $11.22 million, which translated into adjusted earnings of $0.19 per share.
While 3D Systems, as compared to Stratasys, posted slightly better organic growth and has been profitable, it missed both top and bottom line estimates.
For the current fiscal year, 3D Systems is eying adjusted profits of between $0.73 and $0.85 per share from revenues of between $680 million and $720 million. This is in-line with analysts’ revenues and earnings estimates of $698 million and $0.80 per share respectively.
The industrial sector has not fully adopted 3D-prnting yet, which is mainly used for the development of prototype models. Nonetheless, the industry is still heading in the right direction which will create significant growth opportunities for the two leading players: Stratasys and 3D Systems.
According to the research firm Gartner, 3D printing industry will continue to grow at a robust pace. Last year, Gartner estimated that combined 3D printing expenditure increased by 43% to $412 million, driven by growth in enterprise spending to more than $325 million. For 2014, Gartner believes that 3-D printing expenditure could grow by 62% to $669 million which wil also be driven by the enterprise segment.
Disclosure: This article was written by Sarfaraz A. Khan, with valuable contribution from Gohar Yousuf, research assistant at Half Bridge Business Review. Neither Sarfaraz A. Khan, nor Gohar Yousuf have any positions in the stock(s) mentioned in this article.