3D Systems Corporation (NYSE:DDD) gets a Buy rating from Deutsche Bank analysts as the company is expected to witness significant growth in the 3D printing space.
Sherri Scribner of Deutsche Bank pegged 3D Systems’ target price at $95.
David Einhorn Buys Three New Stocks: These Are The Names And Theses (Q3 Letter)
David Einhorn's Greenlight Capital funds returned 5.9% in the third quarter of 2020, compared to a gain of 8.9% for the S&P 500 in the same period. This year has been particularly challenging for value investors. Growth stocks have surged as value has struggled. For Greenlight, one of Wall Street's most established value-focused investment funds, Read More
3D Systems is industry leader
According to the Deutsche Bank analyst, 3D Systems continues to be one of the leaders in the industry. The analyst points out that 3D Systems was the first company to commercialize additive manufacturing. The company has amassed the largest portfolio of technology offerings in the additive manufacturing by adopting acquisition routes.
Last week, 3D Systems Corporation (NYSE:DDD) acquired Figulo Corporation to become a leader in the end user ceramic 3D printers. Figulo Corporation is a leading manufacturer of ceramic objects using 3D printing. Its primary customers include consumers, makers, artists, designers and architects.
The Deutsche analyst believes 3D Systems is well positioned to benefit from the growth in the nascent additive manufacturing industry through its extensive technology portfolio. With strong industry growth just beginning to take off, the analyst views 3D Systems as one of the primary beneficiaries.
3D’s growth strategies
Sherri Scribner of Deutsche Bank notes 3D has outlined five strategic growth initiatives as part of its growth strategy. These include: (a) growing the global custom parts business, (b) accelerating 3D printer penetration, (c) growing the healthcare solutions business, (d) building 3D consumer content products and services, and (e) integrating 3D authoring solutions.
The Deutsche analyst believes these initiatives undertaken by 3D Systems Corporation (NYSE:DDD) will help the company grow faster than the overall additive manufacturing market.
The analyst points out that while the company’s printers and services have margins in the 45% range, materials command margins in the mid-70% range. The analyst notes one of 3D Systems’ growth strategies is to increase its installed base of printers in order to drive higher materials sales in the future. The following graph highlights 3D Systems’ printer vs. materials year-on-year growth:
Increasing share of proprietary material
According to Deutsche Bank analyst, 3D Systems Corporation (NYSE:DDD)’s customer patterns reveal that proprietary materials are actually growing faster than non-proprietary materials. As can be deduced from the following graph, proprietary materials currently account for over 70% of the company’s materials sales, against just 32% in F1Q-10.
The Deutsche analyst points out that over the past few years, 3D Systems Corporation (NYSE:DDD) has done a commendable job of improving its profitability. For instance, the company improved its gross margins from 40% in 2007 to over 50% in 2013. As can be seen from the following graph, the company’s gross margins have increased in all of its segments, with the most significant improvements witnessed in printer and services gross margins.
According to Sherri Scribner of Deutsche Bank, with the significant growth expected in the 3D printing space, its sales ratios coupled with DCF would be the best way to value its stocks. The analyst pegged $95 price target for 3D Systems based on the shares trading at 14x the analyst’s EV to FY 14E sales.
The following table depicts Deutsche Bank analyst’s forecasts and ratios for 3D Systems: