Credit Suisse Upgrades Stratasys, Downgrades 3D Systems on Valuation, MakerBot Outgrowth
The analyst moved his investment rating on SSYS from Neutral to Outperform and on DDD from Outperform to Neutral.
Shaffer cited the following reasons for the call for a pair trade this morning.
Valuation Divergence The 3D printers SSYS and DDD are similar in scale and both product and service offerings, yet DDD is trading at a lofty premium to SSYS - an unjustified premium says Credit Suisse's Shaffer.
Market Penetration Shaffer's analysis suggests significant growth in both the pro-sumer (engineers, architects, educators) and consumer markets (households and children). The analyst remains positive on the manufacturing market as well, predicting these markets being valued at $800 million.
Revenue Growth SSYS organic top line growth could prove conservative as MakerBot exceeds prior expectations of sales guidance of $660- $680 million in 2H14, Shaffer said. MakerBot has strongly positioned itself in the 3D industry by way of offering superior quality, ease of use, and high sales exposure of 21 percent. Shaffer's 2014 MakerBot estimates increase significantly based on the new product line and penetration analysis, Credit Suisse estimates EPS just above the top end of FY14 guidance and +45 percent organic revenue growth at MakerBot in 2H14.
3D Systems earnings are expected to be lowered and disappoint, according to Shaffer, citing higher R&D costs from the recent Xerox transaction, incremental sales, and marketing expenses.
Based on Credit Suisse research, SSYS guidance and future expectations position SSYS to benefit well in the 3D printing area, garnering a seemingly much more bullish sentiment than DDD.
Shares of 3D Systems are trading down nearly 5 percent to around $86.25; Stratasys shares are up 1.7 percent to $122.60.
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