Morgan Stanley Downgrades Stratasys, Trims Price Target

In a report rolled out Tuesday, Morgan Stanley downgraded Stratasys, Inc. (NASDAQ: SSYS) from Overweight to Equal-Weight and trimmed its price target from $124 to $53, following the company's poor guidance and  subsequent tumble in the stock price.

Some of the main takeaways of Morgan Stanley’s report:

• “Entering increased investment phase (…) The need to invest to capture the long-term opportunity is driving a faster than expected decline in operating margin raising concerns over the return on investment.” The firm now expects the investment plan to keep operating margins in the 10 percent-14 percent range for a few years still, leaving aside prior assumption of a “modest recovery to the high-teens” in 2015.
• Elevated Op Ex investments are expected to drive the same revenue growth (25 percent) over the long-term.
• Stratasys’ new investment plan aims to broadening its product and solutions portfolio. This worries analysts since “in the past, Stratasys's narrower focus has been key to its better execution than competitors. The broader portfolio suggests investments will remain elevated removing the likelihood of a near-term recovery to the company's 18-23% operating margin target.”

As a result of these concerns, the new model assumes a lower operating margin (12.7 percent, down from a prior 19.3 percent) and revenue, “mostly due to lower margin MakerBot units.”

Several other analysts have weighed in on Stratasys since the earnings call.