3D Systems Corporation (NYSE:DDD) shares have declined more than 67$ year-to-date. But one analyst says the stock is still trading at a “premium valuation.” Longbow Research analyst Joe Wittine has initiated coverage of 3D Systems with an Underperform rating and $25 price target. His price target reflects 17% upside from the current level.
3D Systems faces execution risks
Wittine said in a research note that 3D Systems faces execution risks. The 3D printing company is working to integrate the businesses it has acquired. 3D Systems will also face stiff competition going forward as bigger tech companies such as HP, Epson and Canon enter the 3D printing industry. The research firm noted that 3D Systems has a history of over-promising and under-delivering.
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Joe Wittine’s price objective is the lowest among analysts tracked by Bloomberg. He also initiated coverage of Stratasys, Ltd. (NASDAQ:SSYS) with a Neutral rating. 3D Systems has been on an aggressive acquisition spree. The company is burning its cash on these initiatives. Its cash balance declined by 33% to $377.3 million between Q2 and Q3 of this year.
3D Systems in the midst of a heavy investment phase
Recently, 3D Systems purchased Cimatron for $97 million in cash, which will further reduce its cash pile. In the first nine months of this year, the company has spent $244.3 million on acquisitions, though it generated only $27.9 million from the normal business operations. In May, 3D Systems raised $317 million in a secondary stock offering.
So, the company’s cash position increased by $71 million between January-October 2014, which was largely due to the secondary offering. 3D Systems is spending cash at a rate that may concern some investors. However, the company has stated that it was in the midst of a heavy investment phase. It expects the fully restore the operating leverage then the investment pace normalizes by the end of 2015.
3D Systems shares fell 0.56% to $30.42 at 11:52 AM EST on Friday.