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3D Systems Corp. (DDD): Zacks Rank Buy

Zacks Equity Research

3D Systems Corp. (DDD) reported impressive third quarter results last week, including a positive earnings surprise of 15.4% and a raised fiscal year 2012 guidance. This Zacks #2 Rank (Buy) 3D printers company has beaten the Zacks Consensus Estimate in 3 out of the last 4 quarters with a positive surprise of 34.4%, and has a long-term projected growth rate of 17.6%.

Impressive 3Q for 3D

On October 25, 3D Systems reported third quarter earnings per share that jumped 82.6% year over year to 30 cents, primarily on the back of better-than-expected revenue growth and strong margin expansion.

Revenue surged 57.3% from the year-ago quarter to $90.5 million, driven by a 79.1% surge in product sales and a 27.5% growth in services.

The operating margin expanded 510 basis points (bps) in the reported quarter, primarily due to a 160 bps contraction in operating expenses as a percentage of revenue, as well as a higher gross margin base (up 350 bps).

3D Systems ended the quarter with a cash balance of $184.0 million.


Acquisitions have been an integral part of 3D Systems' growth story. Most recently, it announced back-to-back acquisitions of the Netherlands-based The Innovative Modelmakers B.V. and South Korea-based INUS Technology Inc. (developer of Rapidform). In the recently-concluded third quarter, the company acquired Viztu Technologies, Inc., a developer of online platform Hypr3D.

Outlook Revised Upward

3D Systems raised its fiscal year outlook and now expects revenue between $345.0 million and $365.0 million, versus the prior guidance of $330.0 million to $360.0 million. Earnings are projected at $1.20 to $1.30 per share, instead of $1.00 - $1.25.

At the beginning of the fourth quarter, the company had a strong backlog of $9.3 million.

Earnings Momentum Moves Higher

The Zacks Consensus Estimate for 2012 is at $1.08 per share, which is up nearly 6% in the past 7 days. For 2013, the Zacks Consensus Estimate has climbed 2.3% to $1.32 over the last 30 days, reflecting 29.0% earnings growth.

Reasonable Valuation

Currently, 3D Systems is trading at a significant premium to most of its peers on a forward P/E basis. However, its strong earnings growth expectation of 17.6% over the next five years compares favorably with the peer group average of 9.3%, indicating room for further significant expansion. Moreover, its PEG ratio of 2.3 is lower than the peer group average of 2.7.

Historically, share prices have shown positive correlation to earnings growth. The uptrend in the 2012 earnings estimate should encourage investors as the stock is likely to follow the trend.

3D Systems Corp manufactures 3D printers, print materials and custom parts to its customers. The company also develops creative content development and design productivity tools. The company operates in North America, Europe and the Asia-pacific region. In fiscal year 2011, international operations contributed 49% of the total revenue.

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