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3D Systems (DDD): Can the Stock Surprise in Q1 Earnings?

Zacks Equity Research
Updated

3D Systems Corporation DDD is expected to report first-quarter 2016 results before the opening bell on May 5.

Last quarter, the company posted a staggering positive earnings surprise of 433.3%. However, 3D Systems has had a bumpy earnings history wherein it missed estimates two times in the last four quarters, leading to an average negative earnings surprise of 45.8%.

Let's see how things are shaping up for this announcement.

Factors to Consider

3D Systems’ strategic initiatives like expansion of quickparts services, acceleration of 3D printer penetration, bolstering healthcare solutions applications, developing affordable consumer printers and providing an integrated 3D authoring solutions platform are likely to boost its first-quarter 2016 results. In addition, operational restructuring like improving of the sales network to make it more productive and scalable as well as undertaking of lean manufacturing initiatives in supply-chain operations are expected to be conducive to the results.

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In fourth-quarter 2015, 3D Systems entered into collaboration with two major healthcare companies to expand its Simbionix training product line for women and launched a new cardiovascular anatomical model product line for medical professionals. With such initiatives, we expect the company’s healthcare and related applications to act as a major growth driver for the first-quarter results.

This apart, 3D Systems’ continuous efforts to expand product lines are also expected to augment growth. During the first quarter of 2016, the company upgraded the MultiJet Printing (MJP) family of 3D printers with the launch of high-throughput ProJet MJP 3600 Series and introduced Geomagic Freeform 2016 software products. These new products are expected to drive the quarterly top-line performance.

We believe, surging popularity of 3D printing in almost every field ranging from automotive and consumer products to defense and industrial/business machines has provided the much-needed pick-up after a relatively gloomy 2015 which saw a deterioration in major 3D printing stocks. As a matter of fact, the stock gained 103.6% year-to-date, reflecting the renewed strength in this industry. 

Despite these positives, dismal printer sales over the past few quarters on account of issues like printer mal-performance, which had particularly hurt the sales of professional 3D printers and damaged customer reputation, may continue to bother top-line performance during the quarter. Also, deteriorating macroeconomic conditions like economic slowdown, currency fluctuations and commodity prices volatility may also as significant headwinds.

Of late, adverse currency translations have proved to be a major drag, as a significant part of the company’s revenues are generated from international markets. Also, cut-throat competition in the industry coupled with factors like escalating research & development and selling & administrative expenses are likely to mar the company’s financials.

Earnings Whispers

Our proven model does not conclusively show that 3D Systems will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company currently stands at 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate are pegged at a loss of 1 cent.

Zacks Rank: 3D Systems currently carries a Zacks Rank #2 which when combined with a 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Scotts Miracle-Gro Company SMG has an Earnings ESP of +1.21% and a Zacks Rank #2.

Central Garden & Pet Co. CENT has an Earnings ESP of +3.39% and a Zacks Rank #2.

The Home Depot, Inc. HD has an Earnings ESP of +1.50% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
HOME DEPOT (HD): Free Stock Analysis Report
 
CENTRAL GARDEN (CENT): Free Stock Analysis Report
 
SCOTTS MIRCL-GR (SMG): Free Stock Analysis Report
 
3D SYSTEMS CORP (DDD): Free Stock Analysis Report
 
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Zacks Investment Research