Heard Off the Street: Printing in 3-D has investors scrambling
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Three-D printing, used to make complex parts from digital images, has been hailed as the harbinger of the next industrial revolution. The technology has investors scrambling for a piece of the action.
Of the two widely watched U.S.-based 3-D stocks, Stratasys [ticker: SSYS], which sells 3-D printers and materials the printers use to produce parts, was the laggard last year. It only went up 164 percent and closed Friday at $80.76. The winner was 3D Systems [DDD], which also supplies printers and materials. Its shares rose 270 percent in 2012 and finished Friday at $58.54.
Through the end of January, Stratasys had generated annual returns of 24.4 percent since 2008 while 3D Systems rewarded investors with annual returns of 48.5 percent. By comparison, the S&P 500 scratched out 2.7 percent annual returns over the same period.
"These things have just been monsters," Piper Jaffray analyst Troy D. Jensen said of the 3-D stocks.
Amid the excitement, the owners of a privately held 3-D printing company in North Huntingdon are taking their company public. ExOne disclosed last week it hopes to raise as much as $75 million by selling more than 5 million of its shares to the public. They will be priced between $14 and $16 per share. ExOne would trade on Nasdaq under the ticker symbol XONE.
Three-D printing, also known as advanced or additive manufacturing, eliminates the bending, grinding, finishing and other processes normally required to make complex parts. Digital images of the products are sliced into hundreds or thousands of layers the width of a human hair. Imaging allows manufacturers to customize parts easily and cheaply.
Data from the images is sent to a printer that, layer by layer, emits plastic, metals or whatever other material the part is made from into a box. What emerges is the physical version of the digital image.
One of the first mass 3-D-printed products was the Invisalign brace, approved by the U.S. Food and Drug Administration in 1998 and made with 3D Systems equipment. Since then, large manufacturers have applied the technology to the medical, aerospace, automotive and other industries. ExOne's customers include BMW, Boeing, Ford Motor and Caterpillar.
Three-D printing is used to make parts for hip implants including the cup, the hollow socket of the pelvis. The technology has revolutionized the way the cups are made, according to Terry Wohlers, head of Fort Collins, Colo., consulting firm Wohlers Associates, which tracks the industry. Mr. Wohlers said the surface of the cup must be rough and porous to encourage bone to attach to the implant. Manufacturers used to have to outsource the finishing work, which could take weeks. Three-D printing eliminates that because the surface requirements are part of the digital image.
"You can design that right into your computer model," Mr. Wohlers said. "The 3-D printer doesn't care about how complex these parts are."
Not all of the industry's output is mission critical.
3D Systems' technology also is being used to create customized figurines of "Star Trek" characters. People who want a Mr. Spock that looks like them can get one by providing their photograph. Stratasys teamed up with Materialise, a Belgium software provider, to make a skirt and cape featured at a Paris fashion show last month.
The technology's wide applications explain why the industry has grown at a compound annual rate of 26 percent over the last 24 years, according to Mr. Wohlers. The rate has slowed to 14 percent over the last seven years. "Even so, 14 percent in most industries is still outstanding," he said.
Expectations of continued growth are fueling shares of 3D Systems and Stratasys. Mr. Jensen forecasts industry earnings will grow 30 to 35 percent "for the foreseeable future." That's why shares of 3D Systems and Stratasys are trading at about 40 times what the companies expect to earn this year and 30 times 2014 earnings.
"If they can grow 30 to 35 percent, people are willing to give that kind of multiple to the stocks," Mr. Jensen said.
Rock Hill, S.C.-based 3D Systems and Minneapolis-based Stratasys have not reported 2012 earnings yet. For the first nine months of last year, 3D Systems earned $28.2 million, or 52 cents per share, on revenue of $252.1 million. Stratasys reported net income of $12.7 million, or 58 cents per share, on sales of $144.1 million.
By comparison, ExOne posted a nine-month loss of $11.1 million on revenue of $15.9 million.
3D Systems and Stratasys both have market caps of about $3.3 billion. That makes them as big as Allegheny Technologies, a Pittsburgh-based specialty metals producer. ExOne said that including shares owned by current investors, it would have 13.3 million shares outstanding if investors purchase all 5.8 million shares it will offer. Assuming the shares fetch $15 a piece, ExOne would have a market cap of about $199 million, comparable locally to that of ESB Financial, the Ellwood City parent of ESB Bank.
Although 3-D printing technology has been around for about 20 years, many had viewed it as more of a science project than an investment opportunity. Mr. Jensen said a raft of articles in the national media outlets is one of the things that has changed that perception.
"Now CFOs and CEOs are thinking: 'I need to do this,' " Mr. Jensen said.
If you've come to the same conclusion, be careful out there.
First Published February 3, 2013 12:00 am