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Stratasys Hurt by Disappointing Results & CEO's Resignation

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Stock Market News For Nov 16, 2018

Wall Street finished in the green reversing its five-day negative trend on Thursday following news that United States and China have ramped up their efforts to resolve lingering trade disputes

On Jun 7, we issued an updated research report on Stratasys Ltd. SSYS.

Notably, Stratasys has been struggling with sluggish demand from government and other key vertical customers like aerospace and automotive, which had an adverse impact on its first-quarter 2018 results.

The company posted disappointing results in the last reported quarter, with both the top and the bottom lines falling short of the Zacks Consensus Estimate. Though earnings of 8 cents per share were flat year over year, revenues declined 5.7%.

Additionally, the sudden announcement of the resignation of the company’s CEO, Ilan Levin dampened investors’ confidence.

Notably, Stratasys’ stock has plunged 30.5% over the past year underperforming the industry’s decline of 16.2%.

Factors Influencing the Stock

A decline in sales of high-end products in North America is hurting Stratasys’ top-line performance. Lower demand from government, aerospace and automotive industries is the major cause of the decline per management.

Although the company is trying to address the underperformance of this particular section by working closely with channel partners, we believe the issue will take time to be resolved.

Additionally, the company witnessed expansion of 160 basis points (bps) in gross margin in the first-quarter of 2018 after four consecutive quarters of decline. Overall, the company’s non-GAAP gross margin contracted 240 basis points on a year-over-year basis in 2017.

Notably, per analysts, the 3D printing industry is experiencing a shift in mix from higher price and higher margin products to higher volume and lower price ones, which is a headwind. Though the company is trying to keep a check on its cost structure, this industry trend is anticipated to be a drag on its margins.

Additionally, the unexpected departure of the company’s CEO has been a blow to investors. Elchanan (Elan) Jaglom, currently the chairman, will serve as interim CEO.

All these factors make us increasingly cautious about the near-term performance of this Zacks Rank #4 (Sell) stock.

Stocks to Consider

Some better-ranked technology stocks include NVIDIA Corporation NVDA, Western Digital Corporation WDC and Micron Technology, Inc. MU, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for NVIDIA, Western Digital and Micron is currently projected to be 10.25%, 19% and 10%, respectively.

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