FDM And Manufacturing Expansion Will Unlock New Opportunities

Key Takeaways

• Stratasys' focus on manufacturing applications and innovations in FDM could drive future revenue growth through improved efficiency and consumable sales.
  
• New leadership and strategic partnerships aim to enhance market share and customer retention, positioning the company for revenue growth in key sectors.
  
• Decrease in revenue and rising costs highlight challenges in sustaining growth and profitability amid economic pressures and spending constraints.

Catalysts

Provides connected polymer-based 3D printing solutions.

• Stratasys expects to increase the percentage of its revenue from manufacturing applications, projecting that the majority of its business will be derived from end part manufacturing. This focus is likely to drive future revenue growth.
  
• Stratasys is expanding its capabilities in fused deposition modeling (FDM) and launching new materials and systems, such as the Fortus FDC filament dryer and specialized materials for the defense sector. These innovations are expected to improve production efficiency and boost consumable sales, positively impacting revenue and earnings.
  
• The company is enhancing its global go-to-market strategy by promoting Andreas Langfeld to Chief Revenue Officer. This change aims to improve customer satisfaction, retention, and reseller partnerships, which could drive improved revenue and earnings.
  
• Stratasys has announced new partnerships and wins with major companies like ArcelorMittal and NASCAR, which could lead to increased system sales, higher revenue, and expanded market share in the automotive and traditional manufacturing sectors.
  
• The development of new medical and dental solutions, such as TrueDent resin for dentures and 3D-printed medical imaging phantoms, positioning Stratasys to capture growth in these high-potential markets, potentially increasing future revenue and net margins.

Stratasys Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Stratasys's revenue will grow by 1.9% annually over the next 3 years.
• Analysts are not forecasting that Stratasys will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Stratasys's profit margin will increase from -21.0% to the average US Machinery industry of 9.1% in 3 years.
• If Stratasys's profit margin were to converge on the industry average, you could expect earnings to reach $55.0 million (and earnings per share of $0.63) by about May 2028, up from $-120.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.5x on those 2028 earnings, up from -6.7x today. This future PE is greater than the current PE for the US Machinery industry at 21.3x.
• Analysts expect the number of shares outstanding to grow by 1.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

Stratasys Future Earnings Per Share Growth

Risks

• Decrease in product revenue and ongoing capital spending constraints suggest potential limitations to revenue growth if these trends continue.
  
• A reported decrease of 8.8% in full-year revenue for 2024 highlights the challenge in maintaining revenue streams amid macroeconomic pressures and capital expenditure constraints.
  
• Lower overall system revenue and consumable sales, particularly from constrained capital budgets, indicate potential risks to Stratasys' future revenue and earnings.
  
• Adjusted EBITDA and net income improvements heavily depend on future macroeconomic recovery, creating uncertainty for continued margin expansion.
  
• Continued net losses reported on a GAAP basis, including a $30.1 million non-cash impairment charge, raise concerns about long-term profitability and financial health stability.

Valuation

• The analysts have a consensus price target of $14.0 for Stratasys based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $605.0 million, earnings will come to $55.0 million, and it would be trading on a PE ratio of 27.5x, assuming you use a discount rate of 7.1%.
• Given the current share price of $9.63, the analyst price target of $14.0 is 31.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.