Best Ideas 2018 – 3D Systems Corp. with GabelliVW Staff
We are recommending 3D Systems as our best technology idea for 2018. 3D Systems, headquartered in Rock Hill, South Carolina, is a market leader in 3D printing.
The company has 116 million shares outstanding, trading around $9 per share, for an equity market cap of about $1 billion dollars. 3D Systems shares are trading near a 52-week low, the result of disappointing execution in 2017 and the lack of visibility into the timing of a recovery. Nevertheless, we believe the current valuation is attractive, with shares trading at just 13x our conservative 2018 EBITDA. The company is in the early innings of an operational and strategic transformation, which should result in an improved cost structure, streamlined product portfolio and stronger sales execution. As the company is undergoing transformation, recurring sales of materials and services account for over 64% of its total revenue and help generate positive operating cash flow. We also believe there is a strong case for M&A in the 3D printing market, with Hewlett Packard as a likely buyer. From a technical perspective, the short position is approximately 37 million out of total 116 million shares. As the company delivers on its restructuring and generates organic growth again in 2018, we think there could be a fairly sizable squeeze. We estimate EPS can grow from a loss of 7 cents in 2017 to 30 cents in 2018 and 45 cents in 2019, and calculate a 2019 Private Market Value Estimate of 16 dollars per share.