Heard off the Street: Misery should love 3-D printing firms’ company

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Investors have lost their lust for 3-D printing stocks, sending shares of the ExOne Co. [ticker: XONE] to depths not seen in a year.

Shares of the North Huntingdon-based 3-D printer maker fell 41 percent in the first quarter and have continued sliding this month. They finished Friday at $33.51, off $1.73 for the week. The shares had topped $78 in August after debuting in February 2013 at $18.

Misery loves company, and ExOne has plenty of it. Shares of 3D Systems [DDD], based in Rock Hill, S.C., tumbled 36 percent in the first quarter, while the stock of Eden Prairie, Minn.-based Stratasys [SSYS] fell 21 percent.

Analysts blame a number of things for the 3-D malaise, including vaporization of the unvarnished ardor that propelled the stocks higher last year and the companies' failures to convert revenue growth into sales growth.

"These stocks last year were moving 5 or 6 percent [a day] on nothing, no news," said John Baliotti Jr., who follows the industry for Janney Montgomery Scott. "The incremental investor, at least in the short term, is less enthusiastic than they were last year."

Morningstar analyst Daniel Holland said the escalating prices that investors put on 3-D printing company shares last year were bound to deflate if the companies' earnings didn't live up to expectations.

"Things got really expensive. While it's not the end of the world, if the Street puts that kind of premium on your stock, you're going to have to perform very well," Mr. Holland said. "Sales growth without earnings growth is not a recipe for success in these stocks."

He believes the slide may not be over because 3-D stock prices still are trading at five or six times sales per share forecasts for the next 12 months.

"I think there's more room to fall in these names," Mr. Holland cautioned.

3-D printing enables companies to make plastic and metal products from a digital image in a way that eliminates the bending, welding and other processes that traditional manufacturing requires to make the same finished part. It can also be used to make molds to cast metal parts. The molds are like ice cube trays, but instead of making cubes of water, they are filled with liquid metal to manufacture things like pumps, valves and other industrial parts.

General Electric [GE] acquired Morris Technologies, a Cincinnati 3-D printing company, in 2012 and is now using 3-D technology to print fuel nozzles for jet engines. It says the nozzles are five times stronger than the previous version and require less welding and brazing, another technique used to join metal parts.

Hewlett-Packard [HPQ] is expected to announce its entry into the industry by the end of October. "There is huge opportunity for 3-D printing across a wide array of industries," Martin Fink, the company's chief technology officer, said in a Q&A posted on H-P's website.

Locally, RTI International Metals [RTI] spent $23 million in January to acquire Directed Manufacturing, an Austin, Texas, company that uses 3-D printing to make metal and plastic parts for the aerospace and other industries. The Moon-based titanium producer expects the acquisition will help it produce more advanced, cost-competitive offerings for the aerospace, medical and other industries.

In a March 20 note to clients, Mr. Baliotti said ExOne's technology, licensed from MIT, is "among the most positively disruptive for both the $120+ billion" global casting industry as well as metal part production.

ExOne takes a digital image of a product, then slices the image into layers that are sent to a printer. Unlike an inkjet printer that spits out ink, the 3-D printer emits plastic, metal or some other material, printing the digital image layer by layer until there's a physical version of the digital image. Much of the research ExOne and other companies are doing focuses on accelerating printing times and being able to print using different materials.

Investors were disappointed with ExOne's fourth-quarter and full-year results, Fourth-quarter revenue fell 16 percent to $10.7 million, less than what analysts were forecasting. That resulted in a loss of $3.2 million, or 22 cents per share. For the full year, revenue jumped 38 percent to $39.5 million while the loss shrunk to $6.5 million vs. a $10.2 million loss in 2012.

ExOne is forecasting revenue will grow 40 to 50 percent this year, offering a forecast of $55 million to $65 million.

While investors are dismayed, Mr. Baliotti credits ExOne with doing the kinds of things young, growing companies have to do, including continuing to invest in research and development and to expand capacity to meet demand. He noted that the company's backlog doubled last year to $10.9 million.

"That tells me they need to add capacity," he said.

While the investments will depress ExOne shares near term, Mr. Baliotti said the initiatives will help the company long term. He has a "buy" rating on the stock, placing a $60 value on the shares.

That's down from his previous value estimate of $68 per share. He's also trimmed his earnings outlook for the company, expecting a loss of 25 cents per share this year vs. a previous forecast of a profit of 30 cents per share.

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.

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