3D Systems Shares Fall $5 Following Bank Of America Bearish Commentary

Shares of 3D Systems DDD are down about $5.00 following Bank of America's note that the company's "disconnect with fundamentals is widening."

Bank of America Bearish on DDD Shares

In a report published Tuesday, Bank of America analyst Wamsi Mohan emphasized that shares have "significantly" outperformed since June 15, compared with the four percent increase seen with the NASDAQ. The analyst credits the high short interest and limited borrowing impacting high borrowing costs, and thus, driving the rally.

The firm added that the Materialise IPO helps to analyze 3D Systems provider assets.

Mohan wrote, "As 3D printing companies continue to acquire service provider assets, we take a look into Materialise (a large European software and additive manufacturing service provider) financials that show that even with decent scale (~$100mn in total revenues) profitability levels are still quite low relative the models of existing 3D printing companies. Disclosure from Materialise shows Medical segment EBITDA of 18% (High margin business growing 12% in 2013) and Industrial Production EBITDA margins (4% arguably not at scale growing 20% in 2013). These margins compare to 3D systems consensus EBITDA margins of ~26%."

Bank of America reiterated an Underperform rating on 3D Systems.

3D Systems Leveraged to Research & Development

In a note from May 28, Morningstar Equity analyst Daniel Holland assigned a high uncertainty rating for the company on numerous risks. Bank of America may not too far off in their recent assumptions.

Holland remarked on the uncertainty surrounding the company's "nascent demand and rapidly changing product cycles."

The analyst said, "3D Systems is highly leveraged to research and development, which traditionally has been a discretionary expense for corporations. During cycle lows, customers cut back on R&D spending to preserve profitability, which negatively affects 3D Systems. The company is also exposed to a number of geographies, introducing geopolitical risk as well as intellectual property risk. As additive manufacturing takes hold, there is also the potential for copyright infringement violations by the users of the machines as they make replicas of designs and concepts critical to other firms."

Should Skeptics Consider Long-Term Growth?

On June 21, S&P Capital IQ analyst maintained a Buy rating and $70.00 on 3D Systems. The firm emphasized its belief that the 3D printer industry has tremendous long-term growth opportunity due to greater adaptation over the years.

S&P Capital IQ believes that "recent concerns about margin contraction will soon alleviate, as capacity and headcount additions normalize, and as higher margin print materials growth accelerates."

The analyst concluded that shares "warrant a substantial premium" in the tech sector.

Stock Action

3D Systems has seen a 32.3 percent return over the past 12 months.

Shares closed at $59.80 on Monday. The stock gained more than 16 percent, reaching $69.56, before declining more than $5.00 after the release of the Bank of America note.

3D Systems is currently trading at $63.67, up 6.5 percent from Monday's close.