Lifted by markets at all-time highs, II-VI Incorporated (IIVI) erased some of its declines that followed after its weak quarterly results. And since stocks rebounding alongside the averages might drop more if markets correct, at what price should investors buy II-VI?
Weak First-Quarter Earnings
II-VI reported revenue increasing by 8.3% to $340.4 million. Non-GAAP EPS was $0.57 but GAAP EPS was a loss of $0.39. II-VI excluded many one-time expenses to arrive at a non-GAAP profit. Stock-based compensation and severance both cost $18.4 million while the Finisar acquisition cost $33.9 million.
Finisar added to just $22.1 million in quarterly revenue. After paying $3.2 billion for the unit, markets appear complacent, assuming that the acquisition will not have any future goodwill write-downs. In reality, the increased size now employs 25,000 across 70 locations. Revenue potential grows if demand for photonics increases. Finisar’s positioning in VCSELs (vertical-cavity surface-emitting lasers) is a reasonable expectation. Lumentum (LITE) traded at all-time highs recently as markets priced in the growth potential.
Increasing adoption for 3D sensing embedded devices will drive a CAGR of 18% between 2019 and 2024. II-VI’s bigger size should lead to market share growth. Its broad use case, such as sensing in biometrics, VR & AR (virtual reality and augmented reality), Apple devices, and the automotive market, assures revenue growth ahead.
It is worth noting that Apple’s 80% rise in the year and a 32% gain in the last quarter may explain IIVI’s rebound. As Benchmark Capital said:
"Due to Finisar’s connection with Apple as a VCSEL (vertical-cavity surface-emitting laser) supplier for facial recognition, this strengthens II-VI’s VCSEL opportunity at Apple."
So, stronger Apple device sales during the holiday quarter might help justify the rally in IIVI's stock.
Conversely, Himax Technologies’ (HIMX) partnership with Qualcomm (QCOM) failed. But Himax
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