Why Oppenheimer Still Loves ExOne

In a report issued Monday, Oppenheimer analysts Holden Lewis and Kristen Owen updated their model for ExOne Co (NASDAQ: XONE), following its June 11 earnings release, and reiterated an Outperform rating and $27.00 price target.

The analysts said, “investors should not over-react to a seasonally volume-poor period in a company completing an aggressive build-out.” While they understand that a zero percent gross margin and a net loss that exceeds revenues are disappointing, they think they are mostly a function of scale. If volumes surge, the company’s margins will start to expand quickly. Thus, they remain optimistic about the top-line prospects, encouraged by the management’s tone and adoption-implying PSC growth.

Lewis and Owen assure that, while ExOne cannot work at present volumes, it still represents a compelling value, as its unique products are bound to gain traction in the market soon.

The research note highlights five key points to their thesis:

1) Oppenheimer back-loads the year with cautious optimism.

2) “ExOne put six machines in the hands of customers and only got credit for two. At some point revenue for each should get booked and follow-on from consumables/services should pull through. With the outline of the low-hanging fruit in the pipeline, reiterated revenue guidance doesn't appear completely out of reach.”

3) Non-machine volume (especially leased machines) suggests increasing adoption of ExOne's technology.

4) Margins are most likely “attached to revenues. How the gross margin plays out with an improvement in volume is key to the long-term model.”

5) Although the burn rate is higher than analysts would like it to be, there is still plenty of cash to get through the year. In addition, they expect this rate to narrow as earnings rise.