IPG Photonics Corporation IPGP provided unimpressive preliminary results for third-quarter 2018. Following the results on Oct 5, the stock lost 13.8% to close the session at $132.76.
Shares of the company have lost 31.6% in a year's time, compared with the industry 's decline of 29.3%.
We believe the dull revenue expectation for the third-quarter has dampened investors' spirits. IPG Photonicsannounced preliminary revenues to range between $355 million and $356 million for the quarter, down from the previous guidance of $360-$390 million provided on Jul 31, 2018. The Zacks Consensus Estimate for third-quarter revenues is pegged at $375.7 million. Foreign currency exchange impacted sales by roughly $5 million.
IPG Photonics also projects its third-quarter earnings per share (EPS) to be in the range of $1.83 to $1.87, compared with the previous guidance of 1.80-$2.05 per share. The Zacks Consensus Estimate for EPS is pegged at $1.95 per share.
According to Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer,"The global geopolitical and macroeconomic environment remained challenging as we progressed through the third quarter." Tariffs and trade associated challenges in China and Europe have also caused IPG Photonicsto lower its guidance.
As a result, management lowered the full year outlook. IPG Photonics now anticipates revenue growth to be less than the previous projection of 7-9%, citing currency exchange fluctuations.
The company is scheduled to release full third-quarter 2018 financial results on Oct 30.
Q2 Results at a Glance
IPG Photonics reported second-quarter 2018 earnings of $2.21 per share, missing the Zacks Consensus Estimate by a penny. However, earnings fared better than the year-ago figure of $1.91 per share.
Strong year-over-year growth was driven by a surge of 11.9% in sales from the year-ago quarter to $413.6 million. The increase can primarily be attributed to robust adoption of IPG Photonics' high power products. However, the figure lagged the Zacks Consensus Estimate of $418 million.
IPG Photonics is benefiting from strong adoption of fiber lasers over conventional lasers as well as non-laser cutting and welding equipment. According to management, secular transition to high powered products and increased electric vehicle battery production were the primary drivers behind the increased adoption of the high powered lasers.
Further, acquisitions have helped the company to expand its product portfolio. IPG Photonics is gradually expanding into new end-markets like advanced applications (3D Printing, Cinema, and micro-materials processing), communications and medical based on robust product portfolio and strong intellectual property (IP). These have a total addressable market (TAM) of $2.4 billion, which presents significant growth opportunity.
Further, we believe that IPG Photonics' vertically integrated business model is a key differentiator. This not only aids in maintaining technological lead but also keep costs of production lower. In fact, this is likely to aid the company in continuing investments in product development.
Zacks Rank & Key Picks
IPG Photonics carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Salesforce.com Inc CRM , Aspen Technology, Inc. AZPN and NetApp, Inc. NTAP , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The projected earnings growth rate (3-5 years) for Salesforce, Aspen and NetApp are 25%, 16.5% and 14.1%, respectively.
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