HP Acquisition Of 3D Systems ‘Unlikely’; Citi Downgrades DDD
It’s “highly unlikely” HP Inc. ( HPQ ) will acquire 3D Systems, says Citigroup, which downgraded both 3D Systems ( DDD ) and its rival Stratasys ( SSYS ) on valuation after their stocks jumped on Thursday. HP plans to enter the 3D printer market this year. 3D System stock was down 4% in early trading in the stock market today , after rising 10% on Thursday. Stratasys stock was down 8.5%, negating a 5.9% rise on Thursday. Another 3D printer maker, ExOne ( XONE ), was down more than 3% early Friday. Citigroup analyst Kenneth Wong downgraded 3D Systems to sell and downgraded Stratasys to neutral. “(3D System) shares have nearly tripled since troughing mid-February and have doubled year-to-date, despite (3D printer) market conditions that remain unsettled. We believe the upside scenarios from operational efficiencies upside to take-out potential are overstated,” said Wong in a research note. 3D Systems on April 4 named Vyomesh Joshi as its CEO. Joshi had been executive vice president of the imaging and printing business of HP, formerly Hewlett-Packard before its split last year. “We expect Joshi to bring a fresh set of eyes to DDD’s strategic growth and profit initiatives,” Wong said. “Investors believe Joshi’s HP roots enhance the possibility of an HP acquisition of DDD. While we see how bullish investors might connect the dots here, (we) believe that an acquisition by HP is highly unlikely.” Bank of America Merrill Lynch upgraded 3D Systems on Thursday to buy on views that Joshi will spark a rebound at the company. Stratasys’ stock run-up also raises valuation issues, said the Citigroup analyst. “We don’t believe ‘good enough results’ will be sufficient with the recent boost in sentiment, and with industry checks still soft, we believe near-term upside is limited,” said Wong. “Our conversations with those in the industry suggest unit volumes have held, but there has been a downshift in buying towards smaller lower priced systems. “Contrary to investor expectations, we still believe that under ‘normal’ operating conditions, SSYS can generate double digit margins.”