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Stratasys, Ltd. (SSYS), 3D Systems Corporation (DDD): 3D Printing Is Pushing the Limits

3D printing is going through the natural progression of what it produces. First it starts out with simple models made of plastics. Next it goes to low stress functional applications like printing custom bones for patients. Finally, it is combining high stress super alloy dust and using lasers to produce things like jet engine parts.

The players

3D Systems Corporation (NYSE:DDD)

3D Systems Corporation (NYSE:DDD) is the largest manufacturer of 3D printing devices in the US. With operating margins of 18%, 3D Systems Corporation (NYSE:DDD) has a healthy business model, and it measures comparably to its second largest rival, Israel-based Stratasys, Ltd. (NASDAQ:SSYS), with a 20.7% operating margin.

Stratasys, Ltd. (NASDAQ:SSYS) and 3D Systems Corporation (NYSE:DDD) have been gobbling up smaller players in the 3D space for both their operations and their patents. In 2012 Stratasys scooped up 3D printer Objet for $1.4 billion. Stratasys saw an opportunity to use Objet’s prototype producing application and patents as part of the Stratasys family of products.

When comparing the two manufacturers on an earnings basis things get a little tricky. Stratasys has been writing down its intangible assets in a meaningful way, and this has led to some very large discrepancies in what the company recognizes as its earnings and GAAP adjusted earnings. If we were to ignore the Objet acquisition write downs, Stratasys would have earnings of $1.49 instead of a $(.58) loss in 2012.

The earnings multiple using Stratasys’ non-GAAP earnings of $1.49 would give the company a PE of 52, versus the PE of 3D Systems Corporation (NYSE:DDD) of nearly 100. Needless to say both of these companies are very richly valued.

Tried and true applications

Stratasys has been using its printers in industry to create usable models in minutes. An engineer or designer who wants a scale model of their product can use 3D printing software to render a design, and have a printer give them a finished product within an hour. The engineer can then test the product and make alterations after they see what a finished product will look like. This is a process that used to take days to complete.

In 2011, a patient underwent surgery to have her infected jaw bone removed and replaced with a jaw bone mad of titanium powder. The replacement jaw was then coated with an artificial bone substitute as well as specific sites for fixing future prosthetics. This was all done on a 3D Systems Corporation (NYSE:DDD) printer, and shows the great opportunity that these devices have in the world of customized medicine. The alternatives would have been a generic jaw bone that may not have fit properly and caused other problems.

3D printing joins the mile high club

General Electric Company (NYSE:GE) has just used 3D printing technologies to craft jet engine fuel nozzles. The nozzles were made from super alloy dust that was applied in layers and welded with a precision laser to form a solid fuel nozzle. General Electric Company (NYSE:GE) estimates that the new nozzle is 25% lighter and potentially five times more durable than the current nozzle it assembles from 20 different parts.

Since 3D printing is such a new technology to these engineers, they had to develop new quality control methods before these products go into mass production. If all goes according to plan GE will be able to reduce production costs and time by over 25%.

These lighter and more durable products will give GE a competitive advantage in its aviation division compared to its competitor’s current models. The decreased production time will also help tackle GE’s growing backlog.

Over the next five years, GE will invest over $3.5 billion for additive manufacturing equipment. This investment will help GE’s aviation unit produce lighter more fuel efficient engines at faster speeds. GE is predicting that additive manufacturing will be able to increase speeds by nearly 20 times today’s speeds.

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