Goldman Sachs Initiates Coverage on Stratasys, 3D Systems; Favors Former

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On Monday, Goldman Sachs initiated coverage on Stratasys
SSYS
and 3D Systems
DDD
. Analyst rated Stratasys at Buy with a $146 price target, while rating DDD at Neutral with a $63 price target. The stocks are up 2.4 and down 4.2 percent respectively. According to Samuel Eisner, ”physical and intellectual property barriers enable 60+% margins for consumable sales.” The drop in these momentum names have “recalibrated” expectations for more reasonable, “but still rapid growth,” Eisner argued. Conversations with industry participants lead the analyst to “see significant potential for 3DP OE's based on contributions to the industrial supply chain.” However, Eisner does not see “significant market opportunity for consumer 3D printers, despite recent headlines as well as a slew of new entrants.” The analyst sees the a total addressable market of $40 billion over the next 15-20 years, “driven by rapid prototyping in aerospace, automotive, and healthcare markets.” Metal printing “opens opportunities for final production,” but unit economics limitations remain, according to Eisner. The analyst prefers Stratasys to 3D Systems in the near-to medium-term “given the company's larger presence in industrial end markets through the use of the company's PolyJet (jetting technology of photo-curable resins use in rapid prototyping) and Fused Deposition Modeling platforms as well as the potential to capture a larger share of aftermarket revenue through the leveraging of the company's growing RedEye business.” Eisner is forecasting greater than 25 percent annual earnings per share growth through 2016 driven by strong top line performance and 70 basis points of annual operating margin expansion through 2016 for Stratasys. Stratasys' $146 price target is based on “48x the 2015E EPS of $3.05.” 3D Systems' $63 price target is based on “the shares trading at 53x the 2015E EPS of $1.18.
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