3D Systems Corporation (DDD) Earnings: Positive Results Expected

3D Systems Corporation (DDD) Earnings: Positive Results Expected

Against a backdrop of a falling stock price since early January, and increasing expectations among hedge fund managers to deliver earnings to match the hype of 3-D printing, 3D Systems Corporation (NYSE:DDD) is set to report its performance tomorrow.

RBC Capital Markets positive amidst hedge fund short sellers 

RBC Capital Markets, in an investor letter released Tuesday, is expecting positive results. “We anticipate 3D Systems Corporation (NYSE:DDD) earnings call (Feb-28th) will be a positive catalyst for the stock,” the report said.  Investors will be focused on a potential bottom in expenses, improving beleaguered margins, and clarity relative to a tangible payout on recent investments the firm made.

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Readers will recall that on January 10, with the stock trading near $100, ValueWalk reported that leading edge hedge fund Dialectic Capital Management had engaged in a short strategy with the stock.  The stock dropped to the low $70 range before bouncing near $80 per share leading up into earnings.

Looking into sectors that are showing attributes of bubble behavior, or as the letter says “pockets of bubble,” Dialectic pointed to 3D printing, noting that 3D printing stocks are “in the middle of a clear valuation bubble.” Noting public hype for the industry has moved valuation past any reasonable expectation that earnings will catch up with the stock price, which is what investors will be keen to see in tomorrow’s earnings report.

After the Dialectic report, other hedge funds began to pile on the short side of the stock, as noted in ValueWalk. The short sellers included Whitney Tilson, yet Citi issued a positive report.

In 2013, 3D Systems Corporation (NYSE:DDD) financial results showed earnings of $513-514M, or $0.83-0.87 per share, were not really the issue to the extent that forward guidance disappointed.  The cause for concern many fund managers had with the 3-D printing market is the high cost of new product development relative to the somewhat dubious short term payout, which is also reflected in a Citi research note.

In analyzing forward earnings of $680M to $720M the Citi research report said “significantly higher spending will cut into profitability with EPS range of $0.73-0.85 falling well short of our $1.24 and street estimate of $1.27. Base on EPS guide, it appears operating margins will fall from mid-20s in 2013 to high teens (all else equal). We’d expect revenue to be more heavily weighted in the back half with new product launches not likely to have an effect until the company can ramp sales capacity,” the Citi report said.

Prior to the earnings release the 3D Systems Corporation (NYSE:DDD) has seen a rise in the stock price.  “We don’t think the investments that lead to the pre-announcement are ‘catch-up’ investments but rather are driven by DDD’s strategy to further expand and more deeply ingrain themselves in several end-markets,” the RBC letter said.

Analysts revenue expectations for 3D Systems

Analysts in the three dimensional printing market are expecting 3D Systems to deliver revenue of $155 million for the 4th quarter, which would be a notable 52.60% jump in year over year quarterly revenue.

While revenues are expected to improve, net earnings are expected to decline – touching a major point of the shorts, who claim out of control spending without a tangible payoff in sight is the problem.  Earnings are expected to decline six cents to 20 cents per share from a year ago.

The fall in 3D Systems will be compared to rival Stratasys, Ltd. (NASDAQ:SSYS), whose earnings are expected to increase by nine cents compared to a year ago.  

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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