Stratasys Will Continue To Grow

Aug.29.14 | About: Stratasys, Inc. (SSYS)

Summary

Acquisitions have played a vital role in the growth of the company along with organic growth.

Acquisitions in the services segment will allow the company to enhance its services revenue.

4D printing technology will give another dimension to the companies in this sector and Stratasys might have an advantage as the company is working on this technology.

Vertical integration efforts of the company are also likely to result in cost savings and better synergies.

Stratasys (NASDAQ:SSYS) has captured almost every detail of the industrial 3D application and gained a significant market share in the industry. The company is on the verge to unleash a new dimension to additive manufacturing by introducing a 4D printing project in collaboration with MIT Academia. We are still at the early stages of the 3D printing industry and the addition of another dimension shows the participants are not sitting on their hands, and the companies are trying to come up with something new that can set them apart from their peers.

Acquisitions and mergers have been an important factor in the solid growth of the major players in this sector - Stratasys also has done some deals, which have resulted in considerable growth for the company. We will look at the 4D concept and some M&A activity by the company and how it will impact its future prospects.

Services Revenue is Also Important

This sharp increase in 3D printing demand has also boosted rapid prototyping services demand over the last few years. Stratasys has managed to grow its revenue from internally developed products and services as well as from acquisitions. Services revenue of the company will be strengthened by acquiring Solid Concepts and Harvest Technologies - the deals will be completed by the third quarter of the current year. The estimated contribution from these acquired businesses has allowed Stratasys to increase its earnings guidance for the second half of the year.

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Source: Investor Presentation, Second Quarter Earnings Release.

The Emergence of 4D Printing

Stratasys is working in collaboration with MIT Academia on a 4D Printing process. In order to understand the concept of 4D printing, we need to understand its procedure. There are a number of definitions of 4D Printing - We will quote Skylar Tibbits, who first brought the idea of 4D printing. According to Skylar Tibbits, 4D printing is:

"Take multi-material 3D printing - so you can deposit multiple materials - and add a new capability, which is transformation. That right off the bed, the parts can transform from one shape to another shape, directly on their own…So you completely print this part, and it can transform into something else."

The process can transform a single print with multi-lateral features into several 2D and 3D shapes, morphed together to recreate a 4D printing process. This opens the whole new experience of innovative manufacturing with minimum resource consumption. This new method will also reduce the manufacturing costs of the company and increase its production efficiency. So, the benefit of the technology will be cost reduction as well as increase in the efficiency for the manufacturers. As Stratasys has a strong position in the industrial segment, this technology will further enhance its position in this area.

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Source: Investor Presentation, Second Quarter Earnings Release.

High-End Printers will ensure Long-Term Growth

The strong sales of high-end 3D printers have contributed a lot toward the impressive revenue gains in the current year. The Fortus product line and Objet500 Connex3 Color multi-material 3D printer have largely contributed toward the company's success and reported continued growth during the second quarter. The Objet500 Connex3 3D printer is able to print objects in multiple colors, as well as materials with varying physical properties using latest CAD (computer aided design) software, which enabled Stratasys to achieve competitive advantage in the high-tech 3D printers range.

Further, the introduction of Endur, a stimulated Polypropylene material for use with all Objet product lineups, enabled the company to excel in household appliances, consumer goods, automotive parts and lab equipment market. The demand for high-end systems is expected to remain strong as the application of the technology is growing in the manufacturing industry.

Stratasys also moved forward over the last two years by vertically integrating its suppliers into its business. The company has strengthened its materials development capabilities by acquiring Interfacial Solutions, which has been a production partner to the company for its FDM product lines over the last three years. This acquisition has supported the materials R&D skills of the company, which contributed toward improved second half earnings guidance. Stratasys increased its organic revenue growth estimates to approximately 30%, compared to a previous forecast of 25%.

Conclusion

Stratasys remains a strong player in the industrial 3D printing segment and the company has further enhanced its position through these acquisitions. Furthermore, the success of 4D printing will give further advantage to the company in the segment if the experiment is successful. We believe Stratasys is well positioned to grow and the increase in the organic growth estimates shows that the company is confident about growth. We maintain that Stratasys is one of the best picks in the sector.

Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.