IPG Photonics Corporation
IPGP Details
IPG Photonics Corporation (NASDAQ: IPGP) creates high-performance fiber lasers, fiber amplifiers, and diode lasers for various applications. Its laser technologies are employed in multiple applications, including materials processing, communications, medicine, and advanced applications. It sells to original equipment manufacturers (OEMs), system integrators, and end customers worldwide. The company's primary manufacturing locations include the United States, Germany, Russia, and Belarus.
Latest News:
- Continual Russian Operations: On March 03, 2022, IPGP declared that its Russian facilities would continue operating and manufacturing optical components and finished products for US, German, and Chinese companies. On the other hand, sanctions will prolong lead times and raise the cost of shipping components and lasers to and from IPGP's Russian plants.
FY21 Results:
- Progress in Sales: IPGP's Net sales increased by 21.66% to USD 1.46 billion in FY21 (ended December 31, 2021) from USD 1.20 billion the previous year.
- Expansion in Profitability: In FY21, IPGP's net income surged to USD 277.87 million from USD 160.34 million in FY20.
- Strong Liquidity: The company has USD 1.51 billion in cash and cash equivalents (including short-term investments) as of December 31, 2021, and total debt of USD 34.16 million.
Key Risk:
- Customer Concentration Risk: IPGP's five largest clients provided 19%, 24%, and 21% of net sales in FY21, FY20, and FY19. The loss of even one of these clients might jeopardize the company's finances.
- Reduction in ASPs: IPGP's products are experiencing and may continue to experience a significant drop in Average Selling Prices (ASPs) due to new development and technical innovation, greater competition, and pricing pressures from critical customers.
Outlook:
- Q1FY22 Estimates: As of February 15, 2022, IPGP expects Q1FY22 revenue to range between 320 – 350 million, together with diluted EPS of USD 0.85 – 1.15.
- FY22 Estimates: By expanding non-cutting applications, the company predicts a moderate total revenue growth rate of 3 to 6% in FY22. In the medium to long term, it expects double-digit total revenue growth.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation:
IPGP's stock price has fallen 49.95% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 103.05 to USD 241.43. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 130.50.
Considering the significant correction in the stock price, market dominance in the Laser Fiber Technology space, optimistic outlook, strong balance sheet, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 105.17, down 5.69% as of April 05, 2022.
Three-Year Technical Price Chart (as of April 05, 2022). Source: REFINITIV, Analysis by Kalkine Group
Technical Analysis Summary:
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
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