JPMorgan Downgrades 3D Systems, Thinks Investors Are Pricing In Unrealistic Recovery

JPMorgan’s Paul Coster downgraded the rating for 3D Systems Corporation DDD from Neutral to Underweight, while raising the price target from $9 to $10. While 3D Systems reported a 4Q15 beat, expectations had been low; and the recent surge in the company’s shares appears excessive, the analyst said.

Performance And Guidance

3D Systems reported its 4Q15 PF EPS at $0.19 on revenues of $183mm. Revenue was in-line with the company’s preannouncement, while EPS was ahead of consensus expectations. Sales declined by around 2.2 percent y/y, although up 21 percent q/q due to Healthcare and Industrial orders being postponed throughout the year. Gross margins were impacted by write-downs of Cube inventory.

3D Systems’ FY16 guidance continues to be suspended, while the focusing would remain on opex reductions until top line visibility returns, analyst Paul Coster mentioned.

Share Price Rally

3D Systems’ shares jumped around 25 percent on March 14, versus a flattish S&P. Coster believes the stock overreacted due to a short squeeze, and that, similar to the case of near peer Stratasys, Ltd. SSYS, investors seem to be “pricing in unrealistic expectations of a V-shaped recovery.”

The company’s shares have gained around 68 percent year-to-date, versus a 1.8 percent gain in the S&P. The appreciation appears “a bit excessive,” especially since there are no clear indications of a sharp rebound in the end market demand, “leaving minimal margin for error for this execution story,” the analyst wrote.