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3D Systems Corporation (DDD): Is Stratasys, Ltd. (SSYS) Really the New Top 3-D Printing Stock?

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3D Systems Corporation (NYSE:DDD) reported earnings a week ago, and despite showing strong growth, the company just couldn’t convince investors that its long-term progress would be worth a continued high premium. Contrast that with Stratasys, Ltd. (NASDAQ:SSYS), which blew away Wall Street with impressive non-GAAP results after its merger with Objet was finalized at the start of December. There’s some evidence that this merger threw off analyst expectations, as you can see from the divergence between the Street’s consensus and the actual results:

  • 2012 fourth quarter pro forma adjusted revenue: $96.4 million
  • 2012 fourth quarter GAAP revenue: $71.2 million
  • 2012 fourth quarter analyst consensus: $52.8 million
  • 2012 fourth quarter adjusted EPS: $0.40
  • 2012 fourth quarter EPS consensus: $0.38

Stratasys’ non-GAAP results show an amazing beat of the Street’s top-line estimate, and represent a 23% growth rate year over year. On a GAAP basis, it’s even more impressive, since the company posted a 63% growth rate from the $43.6 million in revenue reported for the fourth quarter of 2011. Keep in mind that Stratasys, Ltd. (NASDAQ:SSYS) did not specifically mention whether Objet sales are part of this jump. I believe that there was an impact, but we at the Fool have reached out to Stratasys for clarification and will update as necessary. The adjusted bottom line was closer to what analysts were looking for, and was a 40% increase over the year-ago period.

Stratasys also reported a 29% increase in unit shipments, which works out to about 3,357 3-D printers against the 2,602 systems shipped in 2011. 3D Systems Corporation (NYSE:DDD), by comparison reported 124% higher unit sales in 2012, but did not break out specific sales totals or include sales of the low-cost Cube consumer line.

However, it appears that investors may be overreacting just a bit to this positive report. Thankfully, there was no stock split fiasco, as occurred with 3D Systems, so we can still examine accurate valuations at most investing sites. Stratasys, Ltd. (NASDAQ:SSYS)’s 81.2 P/E remains higher than 3D Systems Corporation (NYSE:DDD)’s 76.1 P/E as of this writing, and since the company’s GAAP earnings per share guidance fails to break into positive territory for 2013, it appears that this metric is only going to get worse.

What the numbers tell you
Before we get started, let’s first take a look at how Stratasys’ quarterly GAAP results look in terms of its recent earnings history:


Sources: Morningstar and company earnings report.
* Fourth-quarter free cash flow total not available at the time of this writing.

The fourth-quarter divergence between GAAP revenue and GAAP net income is striking, and seems to indicate a struggle to mesh Stratasys and the Israeli-based Objet when paired with forward guidance calling for a GAAP loss of between $0.16 and $0.41 per share. On the other hand, non-GAAP EPS guidance for 2013 calls for profit in the range of $1.80-$1.95, which represents growth of between 21% and 31% over this year’s non-GAAP EPS of $1.49. Keep in mind that 3D Systems has undertaken a large number of acquisitions of varying sizes in the past three years, and has not fallen into GAAP-method red ink at any time over this period as it’s bolted these new parts onto its corporate structure. A significant part of the difference between Stratasys’ GAAP and non-GAAP estimates is a $60.5 million intangible amortization charge, and $23.0 million in share-based compensation. Stratasys also expects “significant one-time integration expenses” as it connects its various moving parts more effectively with Objet’s.

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