It is not unusual to see analysts calling for big upside in certain stocks with Buy and Outperform ratings. If they are Dow Jones Industrial Average stocks, the typical upside call is usually close to 10%. Then there is the world of small-cap stocks, where analysts sometimes have upside price targets of 35%, 50% or even 100%.
3D printing’s prior explosive growth has turned into a career killer for many investors and bulls who have staked their reputation on the segment. After all, that endless growth in 3D printing has just run into a lot of stumbles and disappointments.
What has been seen so far is that there is a huge upside call for ExOne Co. (NASDAQ: XONE), preceded by a value call for Stratasys Ltd. (NASDAQ: SSYS) and close to an outright abandonment of 3D Systems Corp. (NYSE: DDD).
Oppenheimer’s Holden Lewis has reiterated his Outperform rating and $26 price target on ExOne, after remodeling the stock after the company’s earnings report earlier in June. That implies that shares are worth over 100% more than the current share price. Lewis said:
We are adjusting ExOne’s model for its June 11 earnings release. Investors should not over-react to a seasonally volume-poor period in a company completing an aggressive build-out. Yes, 0% gross margin is mind-boggling, and its net loss exceeded revenues, but we think this is mostly a function of scale; if volumes ramp, its margin issues likely melt away quickly. We remain optimistic about the top-line outlook on management tone and adoption-implying PSC growth. ExOne cannot work at current volumes. However, if its unique product gains traction in the market over our forecast horizon, as we believe it will, it represents a compelling value and justifies our Outperform rating.
What stands out here is that shares of ExOne have been stuck at low levels for about two months. Much of the interest in the 3D printing sector has dwindled. Losing 30%, 50% or far more of your investment tends to do that.
There are of course some cautionary things here, and some ongoing risks that are far greater than in traditional well-established companies. One risk is that this analysis is back-end loaded for the year, and with some cautious optimism.
Oppenheimer steepened the ramp in the second half of 2015 estimates, with margin being key at the exit of this year. Lewis isn’t offering full credit in his -$0.60 2015 EPS estimate from the prior estimate of -$0.40 EPS. With modest leverage, Lewis now sees a loss of $0.05 per share in 2016, versus a prior breakeven expectation.