Additive manufacturing machine-maker 3D Systems (DDD 4.09%) is selling some subsidiaries and 3D Systems shares are flying higher this morning. In early trading Tuesday, 3D Systems stock recorded nearly a 10% gain before retreating to about a 8.6% rise as of 10:05 a.m. EST.
So what exactly is 3D Systems selling, and why are investors interpreting the sales as good news? In a press release this morning, 3D advised that it has signed an agreement to sell its Cimatron CAD/CAM software and GibbsCAM CNC programming software businesses to private equity firm Battery Ventures for a combined purchase price of $65 million.
Now, the sales of these subsidiaries per se may not be huge news. The $65 million sum is so small it wouldn't even offset the losses 3D as a whole has incurred over the past 12 months. Rather, these sales are important for two other reasons:
First, the cash raised by these sales will mean that 3D doesn't need to issue and sell additional stock (diluting investors) -- at least not in the fourth quarter. And second, 3D describes the sales as "part of the company's announced reorganization and restructuring plan, designed to focus the company on its strategic purpose as the leaders in enabling additive manufacturing solutions for applications in growing markets that demand high-reliability products" (emphasis added).
According to analysts at Craig-Hallum, who predicted this move (or something like it) early last month, those words "part of" could loom increasingly important as the sales of Cimatron and GibbsCamm become just "the first of many" catalysts unlocking value in 3D Systems stock. In conjunction with upcoming earnings results that C-H predicts will be "solid," the analyst remains enthusiastic about 3D shares, rating them a buy with an $11 price target that implies 77% profit from today's prices.
Will 3D hit that lofty goal? The company reports earnings just two days from now, on Nov. 5. Tune in and find out.