Why Wall Street Played Whack-A-Mole With 3D Systems Corporation's Valuation

By Markets Fool.com


Source: 3D Systems, Facebook.

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What: Shares of 3D printing specialist 3D Systems jumped $0.41, or better than 1%, on Friday to close at $30.47, despite three price target cuts from Wall Street firms following the Thursday-night release of its fourth-quarter earnings results.

So what: As a refresher for those who may have missed 3D Systems' quarterly results, the company reported record revenue of $187.4 million, a 21% year-over-year increase, and adjusted EPS of $0.21. Comparably, Wall Street had been expecting $202.3 million in revenue and a more robust $0.25 in EPS, meaning 3D Systems missed on both the top and bottom lines. 3D Systems also noted that the delayed launch of products and gaps in its North American production channel could take a while to correct.

In response to 3D Systems' report, three Wall Street firms cut their price target on the company:

  • Oppenheimer, which cut its price target from $57 to $52.
  • Deutsche Bank, which slashed its price target from $43 to $33.
  • UBS, which reduced its price target from $41 to $32.

Deutsche Bank and UBS both reaffirmed what is the equivalent of a "hold" rating, while Oppenheimer maintained its equivalent of a "buy" rating.

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Although Deutsche Bank dished out the biggest price target, or fair valuation, reduction, its analysts remain bullish on the 3D printing industry over the long run. Analysts at Deutsche Bank merely took their cues from 3D Systems' lower margins as a reason to label the company a "show-me story."

In similar fashion, Oppenheimer issued its research note with the comment that 3D Systems' guidance "didn't stink." While Oppenheimer analysts were clearly disappointed with 3D Systems' Q4 results and its North American channel issues, the research firm did note that consumer growth issues have generally gone away, and that the company's forecast supports accelerating growth in 2015. Additionally, Oppenheimer anticipates merger and acquisition activity should slow for 3D Systems, which should ultimately help boost its margins.

Now what: The question that investors need to ask themselves here is whether or not Wall Street's Whack-A-Mole on 3D Systems' price target is justified.

Source: 3D Systems, Facebook.

On one hand, it's clear that 3D printing has the potential to infiltrate more industries than just manufacturing. The medical field and consumers' homes are two huge opportunities for 3D Systems' machines. Also, purchasing growth has always worked well for 3D Systems, which can complement strong organic growth with new opportunities.

On the flip side, investors have a bad habit of overestimating how quickly a new technology will take hold. Although 3D printing has been around for decades, it only recently became affordable and scalable to the point where it's a viable option for businesses and even some consumers. But as we've seen with 3D Systems' quarterly results, it's often one problem after another. Either products aren't making it out on time, or as we saw in Q4, there's a "channel" issue.

Personally, while I believe there should be some premium given to 3D Systems' unique technology, I'd tend to side with Deutsche Bank in that I'd wait for 3D Systems to deliver on its promises before dipping your toes in the water. Long term, this still looks like a winner, but 2015 has the potential to be another frustrating year for shareholders.

The article Why Wall Street Played Whack-A-Mole With 3D Systems Corporation's Valuation originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of and recommends 3D Systems. It also owns shares of Deutsche Bank. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.