3D Systems Management Shakeup Makes Stock Attractive, Stephens Says

• Shares of 3D Systems Corporation (NYSE: DDD) have dipped 70 percent year-to-date, almost trading at their 52-week low on November 12 at $8.52.
• Stephens’ Ben Hearnsberger has upgraded the rating on the company from Equal-Weight to Overweight, while maintaining the price target at $12.
• Recent industry checks indicate that while demand continues to be subdued, it is not terminal, and Hearnsberger expects restructuring efforts by the company to meaningfully improve profitability in FY17.

Analyst Ben Hearnsberger mentioned that the stock valuation was now low enough for the restructuring initiatives alone to lead to better-than-expected results in FY17.

Hearnsberger also expects limited revenue growth for 3D Systems over the next couple of years, with flat gross margins and improved operating expense leverage.

Following the organic growth peak of 29 percent in FY13, growth rates have significantly dropped to -15 percent in the most recent quarter.

According to the Stephens' report, "This slow down in demand, combined with significantly increased investment, has resulted in an earnings per share decline from ~$0.85 in FY'13 to ~$0.11 expected in FY'15."

This has also lead to a steep decline in the stock valuation from the 2013 highs, which Hearnsberger attributes “mostly to strategic moves undertaken by predecessor CEO and un-achievable expectations set by the market.”

However, Hearnsberger sees 3D Systems as a “self-help” story, with opportunity for improved profitability even in the absence of historical top line growth rates. FY16 is likely to be a restructuring year for the company, with a return to historical profitability in FY17.

The EPS estimates for FY15 and FY16 have been lowered from $0.11 to $0.05 and from $0.20 to $0.10, respectively.