Stratasys Up To Strong Buy: Should It Be In Your Portfolio?

On Jul 9, 2016, Zacks Investment Research upgraded Stratasys Inc. (NASDAQ:SSYS) to a Zacks Rank #1 (Strong Buy). With a modest return of 6.5% over the past one year, positive estimate revisions over the last 60 days and an encouraging fiscal 2016 guidance, Stratasysis an attractive investment opportunity.

Why the Upgrade?

Over the past 60 days, one estimate out of six for fiscal 2016 was revised upward, taking the Zacks Consensus Estimate down by 1 cent to loss of 16 cents. Stratasys also delivered positive earnings surprises in the last four quarters with an average beat of 90%.

Stratasys reiterated its fiscal 2016 guidance. The company expects revenues in a range of $700 million to $730 million (mid-point $715 million). The midpoint of the guidance is above the Zacks Consensus Estimate of $714 million. Non-GAAP income per share is projected between 17 cents and 43 cents.

The company’s sustained efforts on turning around the MakerBot business are impressive. After announcing restructuring plans in Apr 2015, which included 20% job cuts, MakerBot is now trying to accelerate the adoption of 3D technology by raising awareness. In this regard, in July, the company decided to make the MakerBot Replicator Mini Compact 3D Printer available in all of the 600+ Sam’s Club stores across the country.

These initiatives reflect MakerBot’s strategy to increase the accessibility of desktop 3D printing for retail shoppers, which in turn can accelerate its adoption. We believe that these initiatives will drive the company’s performance over the long run.

Furthermore, the company’s focus on the 3D printing market presents favorable long-term opportunities. Data from the Wohlers Report 2014 revealed that the worldwide 3D printing industry is expected to grow from $3.07 billion in 2013 to $12.8 billion by 2018 and exceed $21 billion in worldwide revenues by 2020, with a CAGR of 34%.

Moreover, pent-up demand for 3D printing products is expected from the automotive consumer products, government and defense, industrial/business machines, education research, and others (arts and architecture) segments.

However, some customers are delaying their purchases owing to the current economic conditions. In the 3D printer business, majority of customers have moved toward the lower priced uPrint, which may affect the company’s margins in the upcoming quarters. Going forward, competition from 3D Systems Corporation (NYSE:DDD) is also a potent headwind.

Besides Stratasys, investors may consider Applied Materials, Inc. (NASDAQ:AMAT) and Box, Inc. (NYSE:BOX) , both Zacks Rank #1 stocks in the technology sector.