Coherent Inc.: Profits From Lasers Aren't Science Fiction

| About: Coherent, Inc. (COHR)
Lasers aren't powerful enough to destroy planets but they are powerful enough to slice, carve and shape products such as the glass, cases and silicon chips powering smart phones and tablets. And, with consumers readily adopting e-readers, tablets and smart phones to replace cumbersome and feature poor PCs and cellphones, demand for Coherent laser systems is increasing.
Mobile connected devices remain a driving force behind Coherent's microelectronics sales. The percent of people owning e-book readers climbed to 12% in May 2011 from 6% in November 2010. And 8% of adults now own tablets, with 6.4 million units sold in Q1. Smart phones continue to sell broadly, with 100 million sold worldwide in the first quarter. The ongoing consumer adoption of these products helped the company's microelectronics sales grow 70% to 44.5% of Q1 total company revenue. And, microelectronics bookings increased 101% year-over-year and 12% sequentially. Sales of advanced packaging, flat panel displays and semi applications offer additional upside through this year and next.
The company operates two segments, commercial lasers and components, which sells set configuration products, and specialty lasers and systems, which sells customized product. Last quarter, the company's commercial laser sales ("CLS") were $72.2 million, up 40.2%, while specialty laser sales ("SLS") were up 31.8% to $128.6 million. In the trailing six months, CLS sales rose 50.8% and SLS sales rose 36.6%. Its customers cut across semiconductor, industrial, science and government. Overall bookings rose 44% to $236.7 million in the quarter, bringing the book-to-bill to a healthy 1.18 from 1.10.
Materials processing orders rose 14% year-over-year and 7% sequentially. The company sees upside from laser marking, used in textile processing and consumer electronics packaging, which is growing faster than 10%. And the company is seeing ongoing life science demand from Asia for laser instrumentation, which is expected to continue through next year. The company is also looking to grow its presence in solar and high power materials processing to boost growth.
In January, its board authorized a $75 million, 12-month buyback. And in February the company bought back 454,700 shares for $27.4 million in a Dutch auction. Cost controls helped SG&A drop to 19.5% from 21.7% in the trailing six months year-over-year and the company's gross margin rose to 44.2% from 44% last year.
The company has beaten Street estimates in three of the past four quarters and analysts expect earnings per share of $3.91, up from $3.70 90 days ago, in 2012. The company has $10.8 per share in cash and gets 69% of its sales internationally. Yet, Coherent has dropped 21% from its 52-week high in late April, creating a compelling opportunity to buy shares as they turn up off support at the 200 DMA.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in COHR over the next 72 hours.

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