Why Did Jefferies Cuts Targets On Stratasys And 3D Systems?

• Shares of 3D Systems Corporation DDD and Stratasys, Ltd. SSYS have headed south over the past six months, and have lost a little over 50 percent since July 27.
• Jefferies’ Jason North maintained a Hold rating for 3D Systems and a Buy rating for Stratasys, while reducing the price targets for both. 
• Although demand seems to have stabilized in 4Q in the US and Europe, there is limited visibility heading into 2016, North stated.

Jefferies’ proprietary 3D printing reseller survey indicated that demand had stabilized in Q4 in the US and Europe. Analyst Jason North mentioned that merely 7 percent of Stratasys resellers and 9 percent of 3D Systems resellers reported business being below plan, versus 30 percent and 44 percent in Q3, respectively.

“In Q4, SSYS resellers said revenues were +11% Q/Q and DDD resellers +8%. While those numbers are likely too high, we upside to consensus estimates for SSYS of 0% and downside for DDD's 6%,” North wrote.

Although US and Europe do not seem to be getting worse, 50 percent of resellers do not expect a rebound until the second half of 2016, while resellers “tend to be too optimistic,” the analyst pointed out. Moreover, Asia, which represented 20 percent of Stratasys’ revenues in Q3 and 17 percent of 3D Systems’ revenues, could get worse.

Stratasys may not return to double-digit revenue growth until Q316 and 3D Systems until Q117.

3D Systems

The price target has been reduced from $11 to $7.50. North expects 3D Systems to face execution and competitive issues. 3D Systems has significant exposure to new entrants, estimated at about 70 percent of its product breadth. This is expected to exert pressure on gross margins since the company is likely to respond by lowering pricing.

The EPS estimates for 2015 and 2016 have been reduced from $0.12 to $0.10 and from $0.48 to $0.28, respectively.

Stratasys

The price target has been reduced from $37 to $30. North cited the company’s currently depressed growth rate as the reason, although this is expected to “eventually rebound.”

The non-GAAP EPS estimate for 2016 has been reduced from $1.00 to $0.40.