We have downgraded our long-term recommendation on Stratasys to
Underperform after the company cuts the 2014 outlook and issued a
weak guidance for 2015. The company mainly lowered its outlook to
reflect an anticipated goodwill impairment charge and slower
revenue growth at its MakerBot business. Moreover, the company is
projecting its operating expenses to increase over the next two to
three years as a result of its new investment plans. We are
concerned about the company's declining margins which have been
impacted by increase in sales of lower-margin products as well as
higher acquisition related integration expenses. Furthermore, a
high-cost business model and competition from big and small players
remain the headwinds.
Headquartered in Eden Prairie, MN, Stratasys, Ltd. (SSYS) is a
manufacturer of in-office rapid prototyping (RP) and manufacturing
systems and 3D printers for automotive, aerospace, defense,
electronic, medical, education and consumer product original
equipment manufacturers (OEMs). The company's systems are also used
in direct digital manufacturing (DDM) and rapid tooling
applications. With the use of patented Fused Deposition Modeling
(FDM) and PolyJet rapid prototyping processes, engineers and
designers are able to create precise physical models, tools and
three-dimensional (3D) prototypes out of plastic and other
materials using workstation-based computer-aided design (CAD).
These prototypes are used for testing form, fit and function
throughout the design and development process. Essentially,
Stratasys' systems allow design engineers to develop highly complex
geometrical designs using a wide range of high-performance
engineering materials with in-office RP systems that require no
chemical post processing, special venting or facility
The company generally reports revenues under two segments.
First, Product Revenues, which includes revenues generated through
the sale of products and consumables. Second, Services Revenues,
which include revenues generated from service offerings, such as
RedEye paid parts, installation and maintenance, and other
services. In fiscal 2013, Products and Services accounted for 86%
and 14% of the total revenue, respectively.
The company competes in a marketplace that is still dominated by
conventional methods of model-making and prototype development.
Machinists and engineers working on blueprints or CAD files and
using machining or manual methods generally perform prototype
development and fabrication.
The company's competitors include 3D Systems Corp., EOS GmbH and
EnvisionTEC GmbH in the prototype development and customized
manufacturing processes. Stratasys competes with companies such as
Delta Micro Factory, Affinia, Ultimaker, Printrbot, Leapfrog,
Solidoodle and 3D Systems in the entry-level desktop 3D
Stratasys Ltd. (SSYS): Read the Full Research
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