Macro Headwinds Provide Good Entry Point For Proto Labs, Says Canaccord

Shares of
Proto Labs IncPRLB
have declined "substantially" due to U.S. macro concerns regarding industrial production, according to Bobby Burleson of Canaccord Genuity. The stock is lower by nearly 7 percent over the past five days alone and lower by more than 20 percent over the past year.

Burleson commented in a research report on Thursday that the selloff in Proto Labs' stock represents a "solid entry point" given its strong business model and an attractive valuation.

Business Model

According to Burleson, Proto Labs' proprietary software makes it a leader in the space, and there is unlikely to be a challenger to its "leading position" in quick turn CNC machining and injecting molding services.

The analyst added that Proto Labs' "strongly ramping additive" manufacturing business represents a tailwind to gross margins as its recently acquired facilities in Europe increases its capacity utilization over the remainder of 2016.

Related Link: 3D Printing: The Next Biggest Trend In Shoes

In addition, Proto Labs is in a strong position to grow its share of unique product developers through an improved marketing effort.

Valuation

Burleson continued that Proto Labs' exposure to customer R&D activity has made it a "lagging indicator of industrial demand." In fact, the company hasn't seen any macro-related weakness until the first quarter of this year compared to some of its peers that saw weakness as early as mid-2015.

As the macro environment improves over time, the company at the very least can maintain its market share, which justifies "at least" a valuation of 15x EV/EBITDA on 2017 estimates. By comparison, the analyst pointed out that the range prior to the macro-related slowdown has been roughly 15x to 20x.

Shares remain Buy rated with an unchanged price target of $65, which implies a 14.6x multiple to the analyst's 2017E EBITDA.

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Posted In: Analyst ColorLong IdeasNewsReiterationAnalyst RatingsMoversTechTrading Ideas3D3D PrintingBobby BurlesonCannacord Genuityindustrial productionManufacturing CompaniesProto Labs
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