20140414-高盛-Initiate_on_Additive_Manufacturing_with_an_Attractive_view__Buy_SSYS,_Neutral_on_DDD_73页_883kb

Summary of "Americas: Capital Goods" - Additive Manufacturing Report

Core Content

This report initiates coverage on the Additive Manufacturing (AM) industry, focusing on the industrial applications of 3D printing (3DP) and the financial performance of two key players: Stratasys Ltd. (SSYS) and 3D Systems Corporation (DDD). The analysis emphasizes the shift from hyper-growth expectations to a more realistic, steady growth outlook driven by industrial adoption.

Main Points

• Industry Overview: The AM industry is expected to grow significantly over the next 15–20 years, with a total addressable market (TAM) exceeding $40 billion. This growth is anticipated to come from industrial applications, not consumer ones.

• Investment Thesis: The report argues that investors should focus on financial returns rather than growth potential. AM companies are already generating strong margins and returns, making them attractive growth stocks.

• Financial Metrics:

  • Both SSYS and DDD have high gross margins (50–60%) and EBIT margins of around 20%.
  • CROCI (Cash from Operations / Revenue) is expected to improve from low single digits to mid-teens.
  • SSYS is expected to outperform due to its diversified product portfolio and strong platform leadership.

• Market Structure:

  • Industrial applications (Aerospace, Automotive, Healthcare, Industrial, and Consumer) are the primary drivers of AM adoption.
  • Consumer 3D printing is seen as a smaller opportunity, with a projected $1 billion market.

• Key Debates:

  • Growth vs. Hyper-growth: The report argues that AM companies are growth stocks with solid returns, not hyper-growth companies.
  • Industrial vs. Consumer: Industrial applications represent a much larger and more sustainable market opportunity than consumer use.

Key Companies

Stratasys Ltd. (SSYS)

• Rating: Buy
• Current Price: $94.58
• 12-Month Price Target: $146.00 (+54% upside)
• Reasoning: SSYS is positioned to outperform due to its strong industrial presence, diversified product offerings, and improving CROCI. It has a larger installed base and a focused growth strategy.

3D Systems Corporation (DDD)

• Rating: Neutral
• Current Price: $48.07
• 12-Month Price Target: $63.00 (+31% upside)
• Reasoning: DDD faces near-term headwinds due to incremental investment spending. Its M&A strategy carries higher long-term risk, and its growth potential is more uncertain compared to SSYS.

Valuation and Price Targets

• Valuation Approach: The report uses a growth-adjusted P/E and DCF analysis to estimate price targets.
• SSYS: Based on 48x 2015E EPS of $3.05, with a potential for 25–30% EPS growth.
• DDD: Based on 53x 2015E EPS of $1.18, with a projected 25% EPS growth rate.
• Price Target Justification: Both companies are seen as undervalued relative to their growth prospects, though SSYS has a more favorable outlook.

Investment Framework

• Business Model: 3DP companies have strong profitability due to high margins on both printers and consumables. The razor and razor-blades model is central to their business.
• Growth Drivers: Industrial adoption, particularly in aerospace, automotive, and healthcare, is the main driver for long-term growth.
• Software Limitations: Current 3D modeling software is a limiting factor for adoption. Improved software is necessary to unlock further growth potential.
• Material Science: Advances in metal printing are expected to open new opportunities, but unit economics and material properties remain challenges.

Risk Considerations

• Industry Risks: High capital intensity, dependence on consumables, and potential competition from low-cost consumer materials.
• Investor Sentiment: Recent declines reflect a shift in expectations from hyper-growth to more moderate growth, but the long-term outlook remains positive.

Key Charts and Tables

• Exhibit 5: Comparison of key metrics (EPS, PEG, CROCI, etc.) for SSYS and DDD.
• Exhibit 6: Breakdown of the $40 billion TAM across key end markets.
• Exhibit 8: Risk-adjusted view favors SSYS over DDD.
• Exhibit 10: Equity raises by AM companies between 2011 and 2013.
• Exhibit 11: Share price performance of AM companies from 2011 to 2014.

Conclusion

The AM industry is transitioning from a hype-driven market to one focused on financial returns and sustainable growth. SSYS is favored for its strong industrial positioning and better financial metrics, while DDD is rated Neutral due to near-term challenges and higher risk. The report highlights the importance of focusing on core industrial applications and improving software and material science capabilities for long-term success.