Stratasys: Only One Thing Is Missing

| About: Stratasys, Inc. (SSYS)
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Stratasys (NASDAQ:SSYS) reported earnings that beat analyst estimates. The company is on track with its merger integration process, and the management says the process is going ahead of schedule. The management reiterated the full year guidance, and expects revenue growth to be stronger in the second half of the year as integration synergies ramp. Market reaction was lukewarm, with shares trading nearly flat after the report, but 3D Systems (NYSE:DDD) helped, with a 7% rise after a bullish Cannacord Genuity report.

Earnings highlights

Stratasys reported first quarter adjusted earnings of $0.43, ahead of analyst estimates for $0.38, representing an increase of 40% over Q1 2012. Revenue rose 18% to $98.2 million, in line with analyst estimates. Gross margin improved 230 basis points to 59%. The management expects that they can keep the gross margin at Q1 level through the rest of the year.

The company reaffirmed the full year earnings guidance in $1.80-$1.95 range, and revenue between $430 million and $445 million. Analyst estimates are roughly around the mid-point of the guidance.

Stratasys completed the second phase of cross training ahead of schedule, and now has 112 partners cross-trained, representing 80% of the company's potential worldwide revenue. The management acknowledged a better market environment, which improved substantially in recent months, driven in part by mainstream media attention. They expect that the company will continue to benefit from those trends.

The management also said that their long-term operating model includes revenue growth of 20%. They remain open to further growth via acquisitions.

Group impact

Good news surrounding 3D Systems has certainly helped Stratasys' and ExOne's (NASDAQ:XONE) short-term share price. ExOne will report earnings Tuesday after the close. 3D Systems moved sharply higher despite the new share offering. The company is set to raise cash to fund new acquisitions, and certain insiders will also sell shares.

The group's movement was also helped by new buy ratings and raised price targets. Janney Montgomery Scoot initiated coverage on Stratasys with a buy rating and $101 price target. They also initiated coverage on 3D Systems with a buy rating and $56 target. Cannacord Genuity reiterated its buy rating on 3D Systems, and raised its price target from $45 to $50. It expects 3D Systems to deliver above consensus estimates on strong printer and services revenue. Cannacord started coverage on Stratasys in April with $82 price target.


Stratasys continues to execute its growth strategy very well. The integration process is going ahead of schedule, revenue and earnings growth are robust and margins are expanding. One thing that I thought was missing, and that would contribute to a very good conclusion on the earnings report is that the guidance remained the same. As the guidance remained the same, I doubt we will see analyst estimates move substantially higher from here (or move higher at all), and that is needed in order to raise the expectations, and that in turn raises the probability of higher share price. But I expect we will see that in the second or in the third quarter, as the management expects stronger growth in the second half of the year.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XONE, DDD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.