Three dimensional (3D) printer manufacturers Stratasys Inc. (SSYS) recently disclosed its intention to merge with Objet Ltd. to form a company which is expected to have a value worth $1.4 billion.
The merged entity would be christened as Stratasys Ltd. The Chairmanship would be held by Stratasys CEO Scott Crump, while the current CEO of Objet David Reis will hold the position of a CEO.
The newly-formed Stratasys Ltd. will be based in Eden Prairie and Rehovot, Israel. Each company will select four members from their existing board to form a nine-member board of the new company. The ninth member will be selected by, Stratasys with the approval of Objet.
Stratasys believes that the deal will have a positive impact on the earnings of the company over the next 12 months, which is expected to result in annual cost savings of $7.0 million to $8.0 million. This apart, the annual growth rate is expected to be at least 20%, non-GAAP operating margins of 20.0%-25.0% (which looks feasible) and non-GAAP net margins of 16.0%-21.0%.
The company has always been active on the M&A front and the acquisition of Solidscape, Inc. for $38.0 million was beneficial for the company. This helped Stratasys to enter 3D printers market applicable for the jewelry, medical and dental industries. There is significant potential for business expansion in the under-penetrated jewelry market and the relatively undeveloped medical, dental and industrial markets.
Solidscape’s 3D printers are used in the manufacture of these products, which is consistent with Stratasys’ strategy to venture into new markets for direct digital manufacturing applications. Stratasys will in turn support Solidscape product development with the aim of producing systems that target new applications. So M&A actions have worked well for the company, helping it to venture into some uncharted territories.
The company reported impressive fourth quarter results with EPS exceeding our expectation and revenue improving on a year-over-year basis. Additionally, the company’s collaboration with technology-major Hewlett-Packard Company (HPQ) is expected to drive growth going forward. This apart, the increasing revenue generation ability of the newly acquired Solidscape is another positive.
However, we are a bit apprehensive about the company’s high-cost business model and stiff competition from big and small players like 3D Systems Corp. (DDD).
The company has a Zacks #3 Rank, which implies a short-term Hold rating on the stock.
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