Oppenheimer 'Flipping Allegiances' In 3D; Downgrades 3D Systems, Upgrades Stratasys

In a report published Thursday, Oppenheimer analysts mentioned that investors seeking exposure to 3D should consider

the best option. The rating on Stratasys was upgraded from Perform to Outperform, and a price target of $50 was established. The analysts downgraded the rating on

from Outperform to Perform, while removing the $38 price target. The upgrade for Stratasys does not imply "absence of uncertainty;" rather it reflects "increased comfort with the scenario whereby 2015 proves to be trough EPS, with its competitive position, and with its relative valuation," the analysts said. Stratasys is facing two issues - low volume for commercial units and declines at MakerBot. "The former is a macro issue, the latter is execution. More importantly, we think these matters are well understood by investors and management and have a diminished capability to surprise," the analysts added. Stratasys has been able to identify the issues at MakerBot. The company is tackling these issues and is reorganizing. The company's much larger commercial business continues to execute well. The analysts expect the company to achieve a solid recovery, provided there is some growth in unit volumes. In the report Oppenheimer noted, "New competition cannot be discounted, but Stratasys' technologies are likely more defensible than investors realize. We also think it is in position to take advantage of final parts technologies that may arise." The downgrade for 3D Systems may appear to be "poorly timed" in view of the already depressed nature of the company's EPS and stock. "Still, uncertainty is up and we do not believe DDD any longer represents the best relative value in the 3D space," the analysts said. The company's organic growth has plunged below that of its peers, and the time required to "fix it all" is uncertain, while fuels concerns related to "the degree to which it has control of its business model," the analysts wrote. In the report Oppenheimer noted, "After a weak 1Q15, it retracted guidance. Further, its CFO left suddenly after six months in favor of its CAO of four months. It is possible these are completely benign. But given the recent intractability of its P&L issues, it is discomfiting." By the time 3D Systems is able to resolve its short-term issues, the company may face "a tougher competitive environment," the analysts added.