3D Systems Corp. (DDD): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
3D Systems is a leading player in the 3D printing industry. The first-quarter results were encouraging as the company reported better-than-expected sales on the back of solid performances from design and manufacturing printers. Moreover, the upward revision of the revenue outlook is a positive. Although the company's current phase of investments is expected to impact margins in the short run, product launches and global expansion will help 3D Systems to generate incremental sales over the long term. Also, the acquisition of Medical Modeling is expected to spur growth and expand its installed base in the highly potential MedTech sector. We initiate our coverage on 3D Systems with a Neutral recommendation and set a target price of $52.00.

Overview:

Headquartered in Rock Hill, SC, 3D Systems Corp. DDD is a leading provider of 3D content-to-print solutions including 3D printers, print materials, on-demand custom parts services and 3D authoring solutions for professionals and consumers, worldwide. The company also provides scanners for a variety of medical and mechanical X-Ray film digital archiving. Apart from these, the company's integrated solutions replace and complement traditional methods and reduce the time and cost of designing new products.

The company's primary print engines comprise stereolithography, selective laser sintering, multi-jet modeling, film transfer imaging, selective laser melting and plastic jet printers, as well as ZPrinters. Its 3D printers convert data input from computer aided design CAD software or 3D scanning and sculpting devices to produce physical objects from engineered plastic, metal and composite print materials.

3D Systems primarily caters to a broad range of industries including manufacturers of automotive, aerospace, computer, electronic, defense, education, consumer, energy and healthcare products, as well as original equipment manufacturers, government agencies, universities, independent service bureaus, and individual consumers.

3D Systems pursues a growth strategy that essentially focuses on five strategic initiatives which include:

Expand Quickparts Services: As a supplement to its 3D printer solutions, the company maintains a global network of parts printing service locations branded as Quickparts. Quickparts are designed to provide customers a single source for all their design-to-manufacturing needs. The company believes growing and expanding its Quickparts services, through organic growth and acquisitions will enable it to impart the latest technology to customers much in advance of their ability to invest in new printers for their own use. 3D Systems intends to introduce customers to the newest 3D additive production technologies thereby building its brand and customer loyalty. Further, it would also provide cross-selling and upselling opportunity from single parts to advanced manufacturing printers. The company launched its Quickparts services in October 2009. Quickparts services generated revenue of $101.1 million for 2013.

Accelerate 3D Printer Penetration. 3D Systems intends accelerating its 3D printer penetration through channel expansion, new products and enhanced 3D printing materials so as to generate higher revenue from recurring sales of print materials and services. Therefore, the company has developed an extensive portfolio of 3D printers and continuously expands its reseller channel for printers and trains resellers to perform installation and services for those printers. In 2013, revenue from the sale of printers was $207.1 million or 40.3% of the company's total revenue.

Grow Healthcare Solutions Revenue. By leveraging the company's core competencies in healthcare solutions applications and expanding into new applications, 3D Systems intends to generate higher revenue within this highly potential marketplace. Healthcare solutions revenue includes the related sales of printers, print materials and services for hearing aid, dental, medical device and other health-related applications. In 2013, healthcare revenue was $71.7 million, or 14.0% of the company's total revenue.

Build 3D Consumer and Retail Products and Services. 3D Systems wants to make its consumer printers more affordable for increased adoption. 3D Systems intends to build this capability through a combination of internal developments and acquisitions. In 2013, consumer solutions revenue was $34.8 million, or 6.8% of total revenue.

Reimagine the Engineer's Desktop. 3D Systems intends providing an integrated 3D authoring solutions platform, including software, perceptual devices and tools to combine, capture, mesh, surface, model and measure, to be able to continue to expand the applications and utilization of 3D printing. This process is expected to aid seamless integration throughout the design and manufacturing processes. In 2013, software revenue was $20.6 million, or 4.0% of total revenue.

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