A new investment report from Cannaccord Genuity highlights 3D Systems Corporation (NYSE:DDD). CG analysts Bobby Burleson and Prabhakar Gowrisankaran argue that 3D Systems fundamentals are starting to fall into place and that a share price rebound is imminent. They also reiterate their Buy rating a $75 price target on the stock. Note that is greater than a 50% premium to the Friday noon 3D Systems share price of $49.

3d systems peer valuation

Near-term improvement in fundamentals

Burleson and Gowrisankaran say they anticipate organic revenue growth to rebound meaningfully versus last quarter’s 8% year over year growth, boosted by sales of new printers and materials, as well as adding Phenix revenues in the organic revenue calculation.

Although most of the attention regarding new products has been focused on consumer printers, 3D Systems Corporation (NYSE:DDD) launched a dozen new professional/production grade printers and materials at EuroMold last December, and the CG report argues these will begin to “contribute meaningfully to product revenue in H2/14.” The addition to organic growth from Phenix is likely to be significant given we estimate more than $10M is coming from sales of these metal machines in the third quarter of this year compared to low single digits in third quarter of 2013.

Moreover, Burleson and Gowrisankaran argue gross margins are likely to rebound as well, driven by the absence of inventory write-downs (unlike Q2), a better materials mix driving materials margins to the mid-70s, and steady improvements for QuickParts. They also anticipate greater factory utilization and a reduction of new product costs.

3D Systems undervalued relative to Statatsys

3d systems vs SSYS

The CG report also highlights that 3D Systems Corporation (NYSE:DDD) current share price reflects the perception that market share is shifting to Stratasys, Ltd. (NASDAQ:SSYS) following 3D’s slower organic revenue growth in Q2. The firm has seen its P/S multiple and share price drop compared to SSYS and peers since reporting earnings at the end of July.

Burleson and Gowrisankaran note: “On a NTM basis DDD’s P/S multiple has expanded from 6.1x to 6.4x (8/1 to 9/17) compared to SSYS’s P/S multiple expansion from 6.1x to 6.8x (8/1 to 9/17). In the same time period (8/1 to 9/17) Stratasys, Ltd. (NASDAQ:SSYS)’s share price is up 31% compared to DDD up 6%.

On a market cap to revenues basis, DDD is trading at 5.5x our C2015 estimate compared to 6.4x for SSYS, 6.9x for ARCM, 5.9x for SLM and 5.0x for XONE.

3D Systems Corporation (NYSE:DDD) is trading at 39 x our C2015 estimate for EPS compared to Stratasys, Ltd. (NASDAQ:SSYS) at 38x our C2015 estimate for EPS.”