What: Shares of Stratasys (SSYS 0.47%) were under pressure on Monday after Piper Jaffray's Troy Jensen downgraded the stock on concerns that demand fell sharply in the second quarter. Jensen also downgraded Stratasys' rival 3D Systems (DDD 3.26%) today for similar reasons.
So what: Stratasys was downgraded from overweight to neutral and its target price was lowered from $32 to $24, which represents about 14% upside from the $21 level the stock is currently trading. Ultimately, this downgrade was prompted by channel checks and surveys to Stratasys resellers that suggested that "the overall tone remained extremely negative and system demand has seemed to have hit a recent low."
It's worth noting that Jensen's checks on Stratasys fared better than 3D Systems'. However, only 17% of Stratasys' resellers experienced sales that trended above their goals, while 61% of resellers reported disappointing results. Given these results, Jensen believes that "the weakness was spread across the company's entire portfolio, and system growth in each product category slowed for the third consecutive quarter." Jensen believes that the weakness likely stemmed from continued excess supply of 3D printing capacity in the marketplace and also the upcoming entrance of Hewlett-Packard, which may be enticing customers to look outside the Stratasys ecosystem.
In addition to the downgrade, Jensen lowered Stratasys' second-quarter revenue estimate by $1.8 million to $170 million and cut his 2017 sales estimate by $36.6 million to $750 million.
Now what: Between a weak customer spending environment that began in early 2015 and the threat of increased competition, which runs the risk of making Stratasys' technology harder to differentiate, investors remain unclear about Stratasys' growth prospects. In other words, the market's reaction to this downgrade appears to be a reflection of this uncertainty. Investors seeking more clarity on these concerns won't have to wait long, as Stratasys is scheduled to report its second-quarter earnings on Aug. 4, before the market opens.