3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) shares plunged today amid almost no news. However, both have been trending lower since July 1 when they shot upward briefly. Nonetheless, Goldman Sachs analysts like both of them heading into their next earnings report later this month. 3D Systems is due to report on July 31, while Stratasys is scheduled to report the day before.
Goldman Sachs likes 3D printing stocks
In a report dated July 7, 2014, analysts Samuel Eisner, Nick Stuart and Stephanie Xu said the overall additive manufacturing segment has seen positive share price movements. They note that stocks in the segment remain down by more than 20% so far year to day, although since the beginning of last month, the segment’s shares are up by 35%.
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They say order trends and also possible new applications are probably providing tailwinds for 3D printing stocks. They note that through the first quarter, some 3D printers saw weakness in orders and revenue because of timing delays. However, they say more recent data points suggest there’s strength in the segment.
3D Systems raises equity
The Goldman Sachs team believes 3D Systems’ recent equity raise was creating optimism around the company. It issued nearly 6 million more shares, raising almost $300 million in May. Then at the company’s analyst day, the company showed it was willing to use the proceeds from that equity raise for future mergers and acquisitions. Given 3D Systems’ history in this area, they expect more transactions in the materials market instead of on the hardware side.
Another positive they noted for 3D Systems is the increase in revenue guidance. The company also maintained its guidance for earnings per share even though there will be 6% dilution due to the equity offering. They see the possibility for more revenue upside, possibly for both 3D Systems and Stratasys.
One other positive report regarding 3D Systems today is its ranking in 13th place on Forbes’ list of the 100 most innovative growth companies.
Stratasys remains Goldman’s top pick
The analysts say Stratasys is still their top pick because it is targeting growth through its core MakerBot, FDM and jetting platforms. They believe the company’s direct sales approach will help it pull in a bigger share of consumables revenue compared to its peers. Since consumables have high gross margins of more than 70%, they say this should make higher margins possible in the medium term.
Overall, the Goldman Sachs team remains upbeat on both 3D Systems and Stratasys heading into this month’s reports. They note that both companies reported first quarter revenue beats. Also Stratasys’ new MakerBot products are being well-received, and they say that “integration / closings of previously announced service bureau transactions [are] bolstering results.”