Dougherty Upgrades Stratasys, Sees 'A Path Out Of The Dog House'

In a report published Monday, Dougherty & Company analyst Andrea James upgraded shares of Stratasys, Ltd. SSYS to Buy from Neutral with a newly established $45 price target as the "disruptive" company "builds back" its credibility.

"Some have argued that Stratasys is not diverse enough in its technology," James wrote. "Others argue that Stratasys is laser-focused, and that has contributed to its success. We see developing technologies as an opportunity for Stratasys going forward without the burden of previous investment."

According to James checks and discussions with Stratasys' largest resellers in North America, the company is likely to demonstrate a "growing sales momentum" in the back half of the second quarter and a "strong pipeline" into the third quarter.

James said that Stratasys' resellers mostly pointed towards a sales environment that "improved dramatically" from the first quarter. In addition, Stratasys no longer offered deep discounts (as it did in previous quarters) and resellers still indicated that sales were "close" to their 25 percent growth objectives. In addition, resellers of large, commercial machines have now begun selling the MakerBot brand which will help drive incremental sales as the product can be offered as an alternative to a low-end industrial machine with a high price tag.

James also noted that Stratasys is focusing heavily on the aerospace market and will have a presence at the Paris Air Show this summer to pitch its products to companies of all sizes. Stratasys already has a deal with Airbus to print more than 1,000 parts for the AX350 XWB aircraft. While the financial aspect of the deal "isn't highly material," it is the result of years of work and can be used as a "proof of concept" for the entire industry.

James further added that his contacts at the FAA have said that Rolls-Royce and GE Aviation have applied for FAA approval to make use of 3D printed parts on its aircraft. While the analyst cannot confirm the accuracy of this statement, he did note that it is his belief that these companies may be already working with Stratasys.

Within the consumer market, Stratasys recently said that it is achieving sales targets. The company no longer breaks out its consumables numbers, but did expand its relationship with Sam's Club after an initial test in 300 stores. The analyst noted that this expansion represents a "positive" and is unlikely to have happened "without sales to back them up."

Bottom line, once investor confidence in the industry returns, Stratasys can see its multiples improve. With shares trading at a historically low P/E level, the risk to reward profile is "favorable" although the company's management team still needs to "work hard to build back credibility."