Stratasys: Zacks’ Bear of the Day Play

Stratasys (SSYSAnalyst Report) recently warned that its first quarter and full year financial results are going to be below expectations. The company provided preliminary results for Q1 that were well below consensus and lowered its full year earnings guidance, prompting analysts to revise their estimates significantly lower.

This sent the stock to a Zacks Rank #5 (Strong Sell).

Stratasys provides 3D printing and additive manufacturing solutions. Its FDM, PolyJet, and WDM 3D Printing technologies produce prototypes and manufactured goods directly from 3D CAD files or other 3D content.

Approximately 82% of net sales come from products like 3D printers, while 18% comes from services. Around 46% of net sales came from outside of North America in 2014.

The company is scheduled to reported its full first quarter results on May 11.

Preliminary First Quarter Results

Stratasys reported disappointing preliminary first quarter results on April 28. The company stated that its expects revenue between $171-$173 million, which is below the consensus of $178 million.

Management also expects the adjusted gross profit margin to contract by approximately 190 basis points, mainly due to mix change. The company is expected to generate a small adjusted operating loss for the quarter too, even after backing out stock-based compensative expense.

Management noted that Q1 results were lower than expected across most geographies and industries compared to previous growth levels. The company blamed lower capital spending within certain regions and industries, particularly in North America, the strong dollar, and increased M&A activity among a few of its largest channel partners in North America, among other factors.

The company announced immediate cuts to operating and capital expenditures for the remainder of 2015, but this did not stop management from slashing its full year earnings outlook too.

Estimates Plummeting

As you might expect, analysts revised their Q1 and full year 2015 estimates significantly lower following the report. This sent the stock to a Zacks Rank #5 (Strong Sell).

The 2015 Zacks Consensus Estimate is now $0.94, down from $1.52 before the Q1 warning. The 2016 consensus is currently $1.41, down from $2.04 over the same period.

This isn’t the first time that analysts have slashed their estimates for Stratasys. As you can see in its “Price & Consensus” chart, consensus estimates have been trending lower for several months now:

Valuation

Although shares of the 3D printer maker have plunged more than 70% from its 52-week high, the stock does not look like a bargain here. Shares trade at 22x 12-month forward earnings and more than 3x tangible book value despite weak profitability. Stratasys has also struggled to generate strong cash flow. It generated less than $14 million in operating cash flow in 2014.

The Bottom Line

With weak earnings momentum and lofty valuation, investors should consider investing their money elsewhere for now.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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