3D Systems Q2 will be announced on Thursday, July 31st in pre-market hours.

Conference call will be at  9:00 a.m. Eastern Time with live webcast @ www.3dsystems.com/investor

3D Systems Q2

There’s no better time for short term trading momentum stocks than around earnings. While most of my articles are geared for long term investors, this article reviews how I plan to play the 3D Systems Q2 earnings in a way that I believe increases the likelihood to get back into my full position at a discount.

 

First of all, I’m not expecting blowout earnings. Although management increased 2014 revenue guidance last month to $695 million-$735 million (from previous guidance of $680 million-$720 million), they kept their earnings guidance unchanged at $0.73 to $0.85/share for the year. 

The average estimate by analysts for this quarter is .18/share on revenue of $162.3 M

3D Systems Q2 2014 estimates

I’m going to guesstimate and say I believe EPS will come in at .16-.17/share, (below estimate of .18/share), with revenue topping the average estimate to exceed $163 million for the quarter.

3D Systems is still digesting the many acquisitions made over the last 12-18 months that I expect will keep earnings growth tepid for Q2 while revenue accelerates. It’s an aggressive business model….buying up nearly everything you can in the space to take advantage of the industry’s 34.9% CAGR (Wohlers), but it comes at the expense of bottom line earnings in the short term.  It also creates risk of course… successfully integrating so many businesses under one umbrella is no easy task and you either believe they’ll pull it off, or they won’t.  I believe they will- the company has a history of successfully integrating dozens of acquisitions in the past.

So, I’m not expecting a blowout in earnings this quarter, which is fine. I want to be fully in 3D Systems shares again before they report Q3 and Q4, when management expects both revenue and EPS to ramp up.  In the Q1 conference call, Damon Gregoire, (CFO), explained:

Please note that we expect a greater portion of our revenue and earnings to be generated during the second half of 2014 as the full impact of our new products and services materializes.”

and looking out further…

“…we fully expect the higher investments that we are currently making to favorably influence our results and competitive advantage of the coming periods. We expect operating leverage to resume in the second half of 2015 and to be fully restored in 2016.”

With this in mind, I’m not expecting very strong numbers on July 31 and the stock could take a hit as a result. In fact, short sellers in the stock seem to be banking on this. Short interest in 3D Systems is high with about 1/3 of the float sold short as of July 15.

I believe the short position in DDD has increased since then based on the trading as compared to SSYS, XONE, and VJET, seen in the 5 day chart below.

3D Systems Q2 chart

Unless earnings come in surprisingly strong, I think shorts will continue to hit the stock over the short term.

That said, short sellers also know what’s expected in Q3 and beyond based…greater acceleration of top and bottom line growth. So I also expect many will be buying to cover their positions as the second half of the year progresses.

“All In” at Q3

As of now I’ve repurchased about 1/4 of the position I’d like to have in 3D Systems and I plan to buy the remainder around Q3 earnings. Unless the company comes out with an earnings blowout (unlikely) and/or increases guidance for the remainder of the year, I don’t plan to rush in.

Now, if the stock craters as it did following the Q1 report, (intraday decline of 27% from the prior close), and there’s no negative guidance revision, I’ll be a buyer Thursday and Friday.  However, I highly doubt that kind of drop will happen this time around and expect trading in a much tighter range with plenty of time to continue averaging into my position over the next few weeks. All this assumes of course EPS and revenue aren’t notably higher than expected. If they are, then I’ll be adding sooner and I’m betting shorts will be covering pretty quickly to protect gains as well.

So this is a bit of a guessing game that will become more clear on Thursday.

What I do know is that:

  • 3D Systems’ work on Project Ara with Google looks like a game-changer for the industry (See: 3D Systems Entering Mass Productions Levels with Project Ara).
  • Key acquisitions of Robtec (a major Latin American service bureau) and Medical Modeling should ramp top and bottom line growth by next year
  • Increased revenue and organic growth is expected in the second half of this year from a wide range of new consumer products, including iSense scanners, Cube 3, CubePro, ChefJet, CeraJet and CubeJet printers
  • Capacity is being added to accelerate Direct Metal 3D printer sales, the demand for which ran ahead of the company’s manufacturing capabilities
  • New software and materials are being launched through the remainder of this year

Due to the above,  I plan to be buying more shares of DDD to regain a full position closer to Q3 and will sit Q2 out.

 

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Disclosure: I am long shares of 3D Systems. I have not been paid by any company or any third-party for this content.

Disclaimer: Opinions expressed are my own and should not be considered investment advice nor an invitation to buy or sell shares of any company mentioned on this site. See sidebar for full disclaimer.

Gary Anderson…..Follow me on Twitter: @3DPrintingStock

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