(DDD) is a remarkable technology company that holds many of the
first patents on an amazing technology. 3-dimensional "printing" as
it's called uses computer-aided design and manufacturing
applications to recreate objects from a software blueprint, using
special polymers to that are added in precise layers.
In the industry, this technology is referred to as "additive
I first discovered the company in January of 2012 when a friend
told me to watch a video of how one of the company's
industrial-strength printers could replicate a working adjustable
wrench in a few hours just from scanning its dimensions with their
The multiplicity of uses for aerospace, automobiles, and other
durable goods in constant need of lighter and stronger parts seemed
One of the most exciting applications of the technology, I thought,
was in medicine where doctors and scientists would be able to
create precision anatomical/biological aids and replacement parts.
Then I learned the company was launching a home version of their
printer for about $1,200 with an online resource for "design
democracy" and collaboration.
I immediately went and bought the stock at $16 and traded it three
times for average swing gains of 25% each last year. As you may
know, the competition has been a hot story too with
(SSYS) moving from $40 to $105 in these same 20 months.
And this week, I almost bought DDD again because I liked the way
the chart is consolidating between $44 and $50, threatening an
upside breakout like so many others this year. In fact, DDD's chart
looks a lot like that of Green Mountain Coffee (GMCR) since May.
GMCR just broke out above $82 this week.
But then I took a look at the Zacks Rank for DDD, which dropped to
a #5 Strong Sell this month. Upon further investigation, I found
that the company has hit some bumpy patches in their growth story
that caused at least two analysts to lower earnings estimates. The
analysts are concerned about acquisition costs, sales growth
execution, and R&D spending.
Here are the EPS estimate tables which describe what's happened
with the earnings outlook into next year...
(Click on image to enlarge)
2nd Quarter Details
Though they missed the EPS consensus by 4 cents (18%), 3D reported
overall solid second-quarter results on July 30. Revenue increased
44.5% year over year to a record-high of $120.8 million, as all
product categories contributed positively for an overall organic
growth of 30.1%. That top-line number beat the consensus by $5
Revenues for 3D printers and other products more than doubled to
$54.2 million from the year-ago quarter, print materials revenues
grew $3.1 million to $29.3 million, and services revenues improved
$6 million to $37.3 million. Healthcare solutions revenues
increased 55% in the reported quarter, contributing about $18.9
million to total revenues.
The healthy revenue growth is attributable to new product launches
that were well accepted by the market, resulting in a strong demand
pull. During the reported quarter, 3D Systems introduced
significant new products including professional 3D printers,
advanced 3D print materials and powerful new designer software
Despite a nearly two-fold rise in research and development expenses
in the quarter, 3D Systems recorded a gross profit increase of 46%
year over year, while gross profit margin expanded 40 basis points
to 51.8%. Management believed that the growth reflected the
inherent strength of the diversified portfolio of the company,
productivity of its sales channels and effectiveness of its
strategic initiatives to continuously focus on R&D and
Net income for the reported quarter was $9.3 million or 10 cents
per share, compared with $8.3 million or 11 cents per share in the
year-earlier quarter. Although the absolute earnings increased year
over year, it declined on a per share basis due to higher number of
shares outstanding for the reported quarter.
Excluding non-recurring items, earnings for second quarter 2013
were $18.9 million or 18 cents per share compared with $13.9
million or 18 cents in the year-ago quarter. The recurring earnings
missed the Zacks Consensus Estimate by 4 cents.
Cash flow from operating activities for the first half of the year
was $12.8 million compared with $21.4 million in the prior-year
period. Cash and cash equivalents at quarter-end was $349.3
Solid Growth, But Expectations Were High
From the subsequent downward estimate revisions, it's clear that
the analysts were looking for more in this report. JPMorgan
analysts pick 3D Systems as the leader in the space with 20%+ CAGR
growth and improving visibility and margins from a shift to
materials and design "authoring" services.
But they also see some execution challenges causing the company to
need to raise R&D spending and the analysts are keeping their
price target at $44. William Blair analysts wrote that while the
company reaffirmed guidance, they don't believe the targets are
achievable and this caused them to be one of the group that lowered
As much as I'd like to own DDD for the long-term, I think I can
wait and buy it cheaper. What am I waiting for? A turn-around in
these EPS estimate revisions. When the company gets through this
rough patch, we'll know it as the analysts bump estimates back up.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
3D SYSTEMS CORP (DDD): Free Stock Analysis
STRATASYS LTD (SSYS): Free Stock Analysis
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