What: Shares of 3D Systems (NYSE:DDD) were sharply lower on Monday after Troy Jensen, an analyst at Piper Jaffray, downgraded the stock following his channel checks, which suggested that the company experienced a notable slowdown in 3D printer demand during the second quarter. Jensen also downgraded rival Stratasys today on similar concerns.
So what: 3D Systems was downgraded from neutral to underweight and its price target was lowered to $10.25, which represents approximately 23% downside from levels seen today. According to Jensen's second-quarter demand survey, weakness was spread across 3D Systems' entire product portfolio.
Jensen called out multiple challenges plaguing 3D Systems, including weak customer spending that began in early 2015, intensifying competition with the upcoming introduction of Hewlett-Packard's (NYSE:HPQ) Multi Jet Fusion 3D printer later this year, and the lingering hangover caused by 3D Systems' previous acquisition binge. Combined, these factors paint a picture that "... 3D Systems' challenges go much deeper than an overall spending slowdown, and [we] believe system quality issues and unhappy channel partners continue to negatively impact system demand."
Ultimately, Jensen believes that any cost-savings improvements will likely be offset by increased spending on research and development to remain competitive and improved service and support to keep customers satisfied.
Now what: Although this downgrade has driven 3D Systems' stock lower, the concerns that Jensen voiced were previously well-known to investors. The slowdown in customer spending has been an ongoing issue affecting the majority of 3D printing companies that cater to the professional and industrial 3D printing market. The threat of increased competition facing 3D printing stocks has been covered ad nauseam across the media. And 3D Systems is working to address its internal issues under the new leadership of Vyomesh Joshi, a 32-year HP veteran with a reputation of staging turnarounds.
However, because 3D Systems is selling off on this news, investors likely need more evidence that the company won't languish under the weight of continued weakness in customer spending and more competition. 3D Systems is scheduled to report its second-quarter earnings on Aug. 3, before the market opens.