With time, 3D printing is expected to evolve into the next generation technology for industrial manufacturing. Over the years, 3D printing has witnessed the introduction of new technologies which has extended its utility from prototyping to digital manufacturing. Though this technology isn't new, the installation of the machines required high capital investment, but the introduction of new technologies has largely reduced the scale of capital investment required.
Direct digital manufacturing has many benefits and this has resulted in increased demand in numerous industries. Due to growing demand, industry consultants estimate that the 3D printing market will grow at the rate of around 20% yearly.
As a result, there's big opportunity for companies like 3D Systems (DDD) and Stratasys (SSYS). ExOne (XONE) is another player in the 3D printing industry, but unlike 3D systems and Stratasys, the company hasn't been very consistent, missing earnings estimates in every quarter since it went public. Surprisingly, the market has overlooked ExOne's flaws and the stock has gained an impressive 70% so far this year.
The 3D printing market is expected to be worth $6 billion by 2017. Credit Suisse started the coverage of the sector with a positive review and predicted that the growth of this segment may exceed the high end of consensus estimates. Let's see how the three players are positioned to benefit from this growth.
3D Systems -- The one to buy
3D Systems is Credit Suisse's top pick in the sector as it was initiated with an Outperform rating and a price target of $62. With a variety of products that cater to prototyping and the consumer segment of 3D printing and a wide range of technology and materials, 3D Systems is expected to attain growth rates well above the industry average. This is clearly seen in Yahoo! Finance estimates, which show that 3D Systems' earnings are expected to grow at an annual rate of 21.55% over the next five years while the industry growth is expected to average 16%.
In addition, 3D Systems has been on an acquisition spree and has acquired 38 companies so far to further strengthen its position. The company has also released a variety of new products, such as advanced 3D printers and new software that have been received well in the market. Such moves helped 3D Systems record more than 100% increase in its printers and other products segment revenue to $54 million in the second quarter.
Recently, the company also started selling its affordable Cube 3D printers at Staples. In addition, the company also announced that it has acquired a California-based start-up micro-design firm known as The Sugar Lab. The Sugar Lab specializes in the 3-D printing of real sugar and is driven by 3D Systems' Color Jet Printing technology. All these moves point to the fact that 3D Systems is trying to pursue all possible areas of growth in the 3D printing industry and that's why investors should take a closer look at it.
Stratasys -- The one to watch
Stratasys' coverage was initiated with a Neutral rating with a price target of $103. The Credit Suisse team wrote,"Stratasys has undertaken some major portfolio moves in the past 12 months, including the merger with Objet Systems (which added the PolyJet printing method as well as a strong Far East sales presence) and the recently closed the acquisition of MakerBot (providing a strong position in consumer markets)."
This acquisition will enable it to compete against 3D Systems in the rising consumer and desktop market, where its presence is still weak. Makerbot recently unveiled Digitizer, a desktop 3D scanner which will scan small objects to make digital 3D models. The machine will not only be extremely user-friendly, but will also cost a lot less than professional scanners. The benefits of Digitizer should increase its demand and will put in into direct competition with 3D Systems' Cube 3D printer.
Stratasys has not performed upto the level of 3D Systems as its share price has gained just 30%. In addition, Credit Suisse's Neutral rating also suggests that it is not superior to 3D Systems. Moreover, its earnings are expected to grow at a CAGR of 10% over the next five years, which is pretty low. This expected growth rate is below the industry's average. However, the acquisition of MakerBot could help Stratasys fight off relatively strong competition going forward and it also gives it a good start in the consumer market as against 3D Systems.
As mentioned earlier in this article, the opportunity in 3D printing is sizable and these two companies have been making some interesting moves to gain over one another. However, 3D Systems has been winning the battle so far. The company is profitable and has been making acquisitions to strengthen its market share. It is moving into the consumer market with Cube and analysts expect robust earnings growth in the future. Hence, I believe that Credit Suisse's Outperform rating on 3D Systems is justified and investors should consider it for their portfolio.