Stratasys' Valuation Got Ahead Of Itself: JPMorgan Downgrades To Sell-Equivalent

JPMorgan’s Paul Coster downgraded the rating for Stratasys, Ltd. SSYS from Neutral to Underweight, while raising the price target from $21 to $22. He cited valuation as the reason for the downgrade.

Stratasys posted its 4Q results ahead of low expectations. The company’s shares responded positively, gaining around 47 percent in five trading sessions, versus a 2.7 percent gain in the S&P.

“Though the company concedes limited visibility, end-market demand appears to have stabilized and the firm has trimmed expenses to align with a low-growth sales outlook of about 3% in 2016,” analyst Paul Coster said.

He added, however, that the market seems to be now pricing in “unrealistic expectations of a V-shaped recovery against the backdrop of cyclical uncertainty and intensifying competition in the 3D space.”

Estimate Changes

The EPS estimates for 2016 and 2017 have been reduced from $0.31 to $0.27 and from $1.03 to $0.91, respectively, to better reflect seasonality and anticipated tax rate.

Despite the downward revision, the estimates are higher than the consensus expectations for both years, “reflecting our confidence in this management team to be vigilant on expenses in a year of limited growth,” Coster wrote.

Long-Term Prospects

Expressing optimism Stratasys’ long-term prospects, the analyst pointed out that the company has a strong portfolio of 3D printing solutions for the prototyping and tooling end-markets, and appears to be poised to emerge as leader in the additive manufacturing space. Moreover, Stratasys has a robust balance sheet and a capable management team.