Can Healthcare Business Drive 3D Systems (DDD) Q3 Earnings?

3D Systems Corporation DDD is scheduled to report third-quarter 2017 results on Oct 31. Last quarter, the company reported earnings of 8 cents per share, reflecting a miss of 38.5%.

The company has a mixed earnings surprise history beating estimates twice in the trailing four quarters, with an average positive surprise of 5.4%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

3D Systems is poised to grow on the back of its strong healthcare business, which has proved to be its highest profit churner in the past few quarters. Consistent demand for printers and materials for medical and dental customers fueled growth of this segment. The company anticipates demand for its products to surge, which will prove conducive to operating profit and bottom-line performance in the to-be reported quarter.

This apart, the company also continues to witness steady performance of its Software business and believes it to be one of the major growth drivers in the upcoming quarter.

The company’s focus on strengthening foothold on 3D printing industry foothold is also expected to present a favorable long-term opportunity. As a matter of fact, majority of 3D Systems customers are shifting from prototyping to end-use production using 3D printing technology, and the company believes that it is well-positioned to aid them in their transformation. This apart, demand for production printers, materials and software is expected to act as major catalysts, supplementing growth.

Moreover, the company has been making acquisitions to diversify offerings, add synergistic technology and expand domain expertise in operating markets. In January 2017, it announced the acquisition of dental materials provider, Vertex-Global Holding B.V., which operates under the Vertex and NextDent brands.

Further, company has successfully improved cost structure and optimized supply chain through concerted restructuring efforts. We believe these diligent restructuring efforts are likely to boost third-quarter financials.

However, the fact remains that the company’s financial performances have been hit by unfavorable broader market conditions. Particularly, revenues from 3D printing products and services were significantly undermined due to a widespread decline in industry demand. Other headwinds, including economic slowdown, inflation, currency fluctuations and commodity prices vagaries, have also negatively impacted the performance. These factors are expected to impact the revenues in the upcoming quarter as well.

In addition, the company’s high research & development and acquisition costs have hurt its near-term operating income performance. Going forward, the company also believes investment in IT and go-to-market initiatives will result in higher expenses, consequently restricting near-term operating income growth.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for 3D Systems this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 11 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: 3D Systems has a Zacks Rank #3, which increases the predictive power of the ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Kemet Corporation KEM has an Earnings ESP of +7.46% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avnet, Inc. AVT has an Earnings ESP of +2.24% and a Zacks Rank #2.

CGI Group, Inc. GIB has an Earnings ESP of +2.67% and a Zacks Rank #2.

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