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3D Systems Plunges: What Wall Street's Thinking

Stocks in this article: DDD

NEW YORK (TheStreet) 3D Systems (DDD) shares were plunging in Wednesday trading, falling 15.6% to $63.96 after the 3D printing company announced full year revenue would be below guidance, and fourth-quarter earnings would be below forecasts.

The company pre-announced earnings of between 83 cents and 87 cents a share in the fourth quarter of fiscal 2013, down from a previous guidance of 93 cents to $1.03 a share. The company said it saw strong professional 3D printer and materials demand, but that was offset by softer demand for on-demand parts and consumer devices in the quarter.

3D Systems now expects to earn between 73 cents and 85 cents a share and revenue of between $680 million and $720 million for fiscal 2014. Analysts surveyed by Thomson Reuters expects earnings of $1.27 a share and revenue of $671.3 million for 2014.


"Consistent with our previous comments, during the fourth quarter we made very significant R&D, manufacturing and marketing investments designed to accelerate revenue growth that resulted in substantially compressed earnings for the fourth quarter," said Avi Reichental, President and Chief Executive Officer, 3DS in the release. "As we previously stated, we are willing to tolerate earnings reduction and even slight gross profit margin compression during this period to substantially accelerate our growth rate and market share. We firmly believe that these accelerated investments that already resulted in the announcement of 24 new products over the past nine weeks position the company to double its revenue over the next couple of years on organic growth of at least 30% going forward and to achieve greater earnings power and profitability over the long term."

Following the announcement, several analysts on Wall Street came to the defense of 3D Systems, noting the company was investing in the future, and investors should not be concerned with profitability right now. Here's what a few of them had to say.

Jefferies analyst Peter Misek (Buy, $102 PT)

"DDD pre-announced Q4 results with revs inline (~$155M, Jef/St $156M) but EPS $0.17-$0.21 (Jef $0.31, St $0.30) as professional was strong but services and consumer weak, underscoring our belief that prototyping is the near-term growth area, but the consumer opportunity will be more difficult to realize. 2014 guidance of revs +36% (organic >30%) but light EPS highlights a sizable ramp but also the decision to invest for the next decade of growth."


Bank of America Merill Lynch analyst Wamsi Mohan (Buy, $90 PT)

"3D Systems pre-announced results for 2013 and gave preliminary guidance for 2014. Management expects 2013 rev of $513-514mn vs. prior guidance of $500- 530mn and our/Street estimate of $515mn/$514mn. Revenue growth remains strong (expects 30% organic and 50% total rev growth for 4Q13). Increased R&D expenditure related to new product development, increased sales/marketing expenses related to sales channel expansion and higher acquisition costs drove EPS for 2013 to the range $0.83-0.87 vs. guidance of $0.93-1.03 and our/Street estimate of $0.95/$0.97. Earnings pressure will weigh on the stock in the near term but we remain optimistic that the revenue growth trajectory remains intact, which should drive significant long term earnings power."

Pacific Crest Securities analyst Weston Tugg (Outperform, $91 PT)

"We are raising our 2014 and 2015 growth outlook for DDD, while our EPS estimates drop substantially. At this stage in the industry, with rapid growth expected and market position crucial, we applaud 3D Systems' effort to ramp innovation through higher R&D and to build its sales channels through new agreements, and higher sales and marketing expenses. These higher costs are needed to cement 3D Systems as the market leader and to support revenue growth rates over 30% annually. Further, if 3D Systems is to defend its position
against new entrants like HP, Epson and Mitsubishi, it needs to strengthen its position now."

Canaccord analyst Bobby Burleson (Buy, $75 PT)

"Despite lower EPS outlook largely on higher opex, we see today's weakness on F2014 guidance as a buying opportunity given the group typically trades on sales multiple, and revenue outlook for F2014 actually went above consensus. Further, with a portion of the top-line acceleration likely due to strong demand for DDD's Phenix metal printer line, a strong report from metal pure-play Arcam this Friday could provide a near-term boost for the shares. We are increasing our revenues and lowering EPS estimates, while our price target is lowered slightly; we expect some multiple compression to persist as investors digest the necessary spending headwind flowing through the financial model while the pace of new product development picks up."

--Written by Chris Ciaccia in New York

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