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3D Systems: How About A Merger With Stratasys?

Summary

What do companies usually do in shrinking industries? They consolidate.

As the 3D printing industry’s outlook remains gloomy, we believe 3D Systems will have no choice but to explore a merger scenario with Stratasys.

At first glance, we see 40-90% earnings upside for the newco.

Our August Buy call on 3D Systems (NYSE:DDD) was arguably a bit premature as the company reported once again ugly quarterly figures ($152m revenue and $0.01 EPS vs. a consensus of $181m and $0.07).

The revenue shortfall (-15% organic growth in constant currency) was clearly surprising after the rather resilient Q2 performance (+2% organic growth) and suggests that customers are starting to hold off their 3D printer purchasing decisions ahead of the arrival of a new wave of printers, something we warned about earlier this year.

Below the top line, the main operating metrics were decent, not to say reassuring. The gross margin was only slightly down (-90bps year on year)...


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