IPG Photonics Corporation
IPGP Details
IPG Photonics Corporation (NASDAQ: IPGP) manufactures high-performance fibre lasers, fibre amplifiers, and diode lasers. Materials processing, communications, medical, and innovative applications use laser technology. It sells to OEMs, system integrators, and end-users worldwide. The United States, Germany, Russia, and Belarus are the company's key production areas.
Latest News:
- Stopped Fresh Investments in Russia: Due to growing geopolitical concerns, the company is limiting its reliance on Russian production and has halted fresh investments while boosting capacity in North America and Western Europe.
Q1 FY22 Results:
- Continuing Revenue Growth: The company reported USD 369.98 million in Q1 FY22, up 7.06% from USD 345.58 million in Q1 FY21, due to higher demand and increased laser welding adoption, primarily in the electric vehicle manufacturing industry.
- Increased Bottom Line: The company's net income increased to USD 69.6 million in Q1 FY22 from USD 68.1 million in Q1 FY21, resulting in an increase in EPS to USD 1.31 per share from USD 1.26 per share.
- Solid Balance Sheet: The company's cash position was USD 642.52 million as of March 31, 2022, compared to a minimal debt of USD 15.74 million during the same period. Furthermore, the current ratio in Q1 FY22 was 8.16x, much higher than the industry median of 2.18x, indicating a solid balance sheet position.
Key Risks:
- Drop-in ASP's: Due to new research and technical innovation, increased competition, and pricing demands from crucial customers, IPGP's goods are experiencing and may continue to face a considerable decline in Average Selling Prices (ASPs).
- Competition Risk: IPGP’s product market is highly competitive, and they are now facing considerable price and technology rivalry, which could result in lower sales, lower gross margins, or a loss of market share.
Q2 FY22 Outlook:
- Q2 FY22 Estimated Revenue: IPG forecasts sales of USD 355 to USD 385 million for Q2 FY22
- Estimated Earnings: IPG expects profits per diluted share to be in the USD 0.95 to USD 1.25 range.
Valuation Methodology: EV/Sales Price Multiple based Relative Valuation
(Source: Analysis by Kalkine Group)
*% Premium/(Discount) is based on our assessment of the company’s NTM 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 40.28% in the past six months and is leaning towards the lower end of its 52-week range of USD 220.51 to USD 90.51. We have valued the stock using the EV/Sales Price multiple-based relative valuation methodology and arrived at a target price of USD 117.19.
The company has reported report another solid quarter with growth driven by higher demand across many diverse applications in Europe, North America and Japan. Increased laser welding adoption, primarily in electric vehicle manufacturing, drove record welding revenue for IPG this quarter. Further, as the company execute on growth opportunities that diversify their revenue across geographies and applications, such as electric vehicle production, handheld welding and medical products, China's share of revenue decreased to 35% this quarter. Given increased geopolitical risks, the company is reducing their reliance on manufacturing in Russia and have stopped new investments in the region while increasing manufacturing capacity in North America and Western Europe
Considering the growth outlook, increased topline, strong balance sheet, trivial debt position, related risks, and current value, we recommend a "Hold" rating on the stock at the current market price of USD 98.54 as of May 23, 2022, as at 10:05 AM PDT.
IPGP’s 1 Year Technical Price Chart (as of May 23, 2022, at 10:05 AM PDT). Source: REFINITIV, Analysis by Kalkine Group
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.
Note 3: The report publishing date is as per the Pacific Time Zone.
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