3-D Printing Sector Ideas

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>>> Are 3D Printer Makers Still Additive?



Investor's Business Daily




http://finance.yahoo.com/news/3d-printer-makers-still-additive-192700309.html



Manufacturers of 3D printers and materials have been getting mixed signals lately from Wall Street. Analysts laud the industry's long-term growth prospects, but waver on just how much growth to expect, and when.

That uncertainty aided the recent slide in shares of leading 3D printer manufacturers such as 3D Systems (DDD), Stratasys (SSYS), ExOne (XONE) and Voxeljet (VJET).

Each of those companies makes printing machines and systems that can produce three-dimensional objects from computer data. The gear can be used to design complex manufacturing tools or let your kid create a toy at home.

The global industry is expected to more than triple over the next several years as manufacturers expand the size and scope of the products.

3D printing, also called additive manufacturing, has become more pervasive in a variety of different commercial and industrial applications. Companies use it to design everything from auto parts and aircraft components to prosthetic limbs, architectural models and energy systems.

The two top players — 3D Systems and Stratasys — both saw share prices hit record highs during the first week of January.

Since then, however, the stocks have been in retreat. 3D Systems has recovered to about 17% below its January high. Stratasys is down about 8% off its high.

Shares have been hurt, in part, by lowered expectations for near-term growth. Analysts are also uncertain over how to value stocks still trying to scratch their way into the mass market.

A recent note from analyst Bobby Burleson of Canaccord Genuity said he expects 2014 to be a year of "growing complexity for the investment landscape" in 3D printing.

"Recent history has seen the sector emerge from the skepticism of 'why now? — 3D Systems and Stratasys have been around for a long time — to a broader acceptance," Burleson noted.

Skepticism then gave way to rising reservations about valuations. "Many of the investors we spoke with in 2012 and 2013 (were) actively working to understand the sector while waiting for a pullback," Burleson wrote.

There is also concern over how 3D printing companies will maintain the growth rate of recent years.

Most see the solution in technologies designed for sales to consumers and professionals.

"A lot of it depends on their ability to deliver competitive costs in high-volume production,

"They need to address the markets for consumers and professionals in addition to the traditional industrial markets," said Hendi Susanto, analyst at Gabelli.

Some analysts, including James Kim of Nomura Equity Research, see "excessive market optimism" about the 3D printing sector. Growth potential in the consumer market remains uncertain, in his view, and the industry lacks mass-production capability.

1. Business

3D Systems and Stratasys are the dominant 3D printer players, with 12-month trailing sales of $460 million and $400 million, respectively. ExOne ranks third with 12-month trailing sales of $42 million, followed by Voxeljet with $14 million.

3D Systems makes content-to-print solutions — 3D printers, materials, on-demand custom parts services. It also provides content creation and design productivity software platforms. Its products are most often used in commercial settings like the aerospace/defense, health care and automotive industries, as well as consumer applications and hobbies.

It gets just more than half of its revenue from the U.S., with Europe accounting for about 28% and Asia 16%.

Stratasys specializes in high-performance and professional 3D printers and consumable materials for rapid prototyping and direct digital manufacturing applications. It makes applications for industrial, commercial and consumer use, and gets more than half of its revenue from North America, with about 29% coming from Europe and 16% from Asia.

ExOne focuses exclusively on the industrial market, making 3D printing machines and products to the specifications of customers. About half of its revenue is from Germany, with the U.S. accounting for 27% and Japan 24%.

Germany's Voxeljet is the only non-U.S. company in the mix. It specializes in large-format 3D printers for industrial and commercial clients, mainly in the aerospace, automotive, entertainment and engineering sectors. The lion's share of its business — about 85% — comes from Europe, the Middle East and Africa.

Of the two industry leaders, 3D Systems has a bigger stake in metal 3D printing, thanks partly to its buyout last year of Phenix Systems, a French maker of direct metal selective laser sintering 3D printers.

However, a December report from FBR Capital said Stratasys might expand its product portfolio by acquiring a metal 3D printer.

"A key gap in the company's product/technology portfolio is in metals," FBR analyst Ajay Kejriwal noted. "Management has indicated interest in looking into metal in a very serious way. A move into this space could round out an already impressive portfolio.

2. Market/Climate

Analyst Susanto, citing data from Wohlers Associates, puts the global market for 3D printers at $2.2 billion in 2012, rising to $6 billion in 2017 and $10.9 billion in 2021.

Industry researcher Freedonia Group offers a slightly more conservative estimate. In its recent report titled "World 3D Printing to 2017," Freedonia said demand for 3D printing "is projected to rise more than 20% per year to $5 billion in 2017.

The industry is scattered with small, privately held players, though many are being snapped up as the industry consolidates.

3D Systems has been a particularly busy acquirer. The Rock Hill, S.C., company has made more than 40 acquisitions in the last three years, diversifying its product line and expanding its market share.

Stratasys hasn't been nearly as active on the M&A front. However, it probably made the biggest splash last year with its $400 million buyout in August of MakerBot, a Brooklyn, N.Y.-based upstart that specializes in affordable 3D printers for the home and office.

Susanto estimates that about 60% of MakerBot sales go to the 3D desktop professional market, which includes architectural design companies, product development applications and aerospace applications.

Meanwhile, Stratasys has worked to increase MakerBot's exposure to consumer markets.

"MakerBot is now available in 42 Microsoft (MSFT) stores, and Stratasys has established relationships with Amazon (AMZN) and AutoDesk (ADSK) as resellers," Susanto said.

3. Outlook

Financially, 3D printing companies have run into a few more head winds lately. Stratasys last month projected 2014 EPS below street estimates, though the company's revenue outlook exceeded expectations.

Analysts expect 3D Systems to deliver a 19% decline in earnings when it reports its 2013 Q4 results on Feb. 28. That would give the company a 5% annual EPS gain for the year, down from 77% in 2012 and 81% in 2011. Analysts polled by Thomson Reuters project a 1% EPS gain in 2014.

ExOne, which is due to report fourth-quarter and full-year 2013 results next month, lowered its 2013 revenue outlook on Jan. 14. It cited sales delayed by customers in Russia, India, Mexico and France.

The slowing trend notwithstanding, analysts don't sound too worried about the industry.

"Monthly orders and quarterly numbers will only tell a small piece of the story," analyst Brian Blair of Wedge Partners noted in a recent report. "We believe this is a multi-year story that is only beginning to unfold.

The bigger story, he says, is that prices of printing machines are destined to drop. The sector will need volume gains at both the low and high ends to maintain momentum.

Freedonia Group projects some of those volume gains will be in the medical and dental markets, "with especially good opportunities expected in dental applications such as braces, prostheses, crowns, bridges, dental aligners and models for dental restoration procedures.

Other growth markets for 3D printing products include consumer products like jewelry, toys and consumer electronics, and aerospace, which Freedonia reckons will deliver above-average growth.

Analysts expect the U.S. to remain the largest global market at more than 40% of global sales, though Western Europe and China should be strong growth areas as well.

4. Technology

The basic technology used by modern 3D printer manufacturers dates back more than 30 years, to when 3D Systems founder Chuck Hull invented and patented what he dubbed "stereolithography.

The technology continues to advance as 3D printers are used in more applications. But the main focus is on building machines that can do more things at a lower price.

Do a Web search for cheap 3D printers and you'll find some personal models listed for as little as a few hundred dollars. Most of these are offered by smaller, privately held firms. On its website, 3D Systems lists personal 3D printers starting at $1,299.

Meanwhile, high-end, industrial grade printers can cost tens of thousands of dollars.

Analyst Blair says the industry is "on the cusp of disruption in the manufacturing sector" as 3D printing sector evolves.

The timing of breakthrough to mass adoption "isn't at all clear," Blair noted. "What is clear is that the capabilities of 3D printers are getting better every six months, and the ease of use is improving, as is the quality of what is available under $1,000."

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