IPG Photonics Corp (NASDAQ:IPGP)

CAPS Rating: 5 out of 5

The Company designs and manufactures a line of high-performance fiber lasers and fiber amplifiers for diverse applications in numerous markets, such as materials processing, communications, medical and advanced applications.

Recs

17
Player Avatar TMF1000 (99.68) Submitted: 7/19/2011 1:03:06 PM : Outperform Start Price: $69.43 IPGP Score: -40.35

My cap price was entered at $69.43. This represents a PE of 31 based on analysts estimates of $2.24 earnings in 2011. But they have underestimated earnings in the past. I think they may be underestimating them now, provided we don't go into another recession.

The value is high, but the prospects are very interesting. If one invests today, one has to believe in the eventual adoption of fiber lasers. They save energy costs and they save time. I think customers desire both.

Sales were $99.958 million up 95.2% from $51.204 million last year. TTM revenues were $348 million or $7.15 per share up 81.5% from $191.69 million or $4.06 per share last year. TTM revenues per share were up 76%. Diluted share count was 48.69 up 1.6% from $47.191 million last year.

The first quarter is historically weaker for them. Yet, their first quarter sales were just 1% down from their record fourth quarter sales. This would indicate to me that their fourth quarter for 2011 will be very strong provided the economy doesn’t implode again.

Growth wasn’t limited to one region or one product line. They grew across all regions, applications and products lines.

Gross margins were 53.7% and operating margins 34.1%. Last year, gross margins were 40.1% and operating margins were 10.4%. These big improvements in margins led to earnings per share of $0.47 an increase of 571% over $0.07 last year.

Material processing was their strongest end market growing 102%. This business segment represents 86% of total sales. Sales from the Material processing segment grew 102% to $86.4 million, and grew 2% from the record fourth quarter, even though the first quarter is typically their weakest.

Advanced applications sales were up 76% to $8.2%, but down 13% from the fourth quarter. This is a small business segment for them. The Company said a highlight of the quarter for this segment was the shipment of another 10-kilowatt single mode laser.

The telecommunications market sales were up 73% to $3.2 million, but down 34% from the fourth quarter. Medical sales were up 10% to $2.1 million and down 5% from the fourth quarter.

Sales in the U.S grew 29%, but China led the way with growth of 234% while Japan and Germany grew 94% and 80% respectively. High Power and pulsed Lasers grew 161% and 69% respectively and represent their best selling products.

High Power laser sales were up 161% from last year to $44.4 million and up 11% from the fourth quarter. High power lasers are continuing to be adopted for cutting and welding applications. At the EuroBlech show in Hanover, Germany, in March of 2011, there were four cutting OEMs that were demonstrating systems not using IPG fiber lasers. Since that time, three of those four OEMs (original equipment manufacturers) have switched over to IPG.

The Auto industry is the primary driver of the high power lasers used for welding. However, these lasers are also used to weld locomotive parts and in shipbuilding. Each of these industries is affected by the global economy.

Cash flow for the quarter was $3.68 million up from $2.923 million last year. TTM cash flow was $35.86 million or $0.74 per share up from TTM cash flow of $34.07 million or $0.72 per last year. This gives them a cash flow yield based on a price of $69.35 of 1.1%.

Conclusion:

Technology stocks scare me. I don’t understand them well. This doesn’t mean I won’t invest in them, but I am very cautious about how I invest in them. I read Dave’s quarterly updates each quarter. I wouldn’t consider an investment without reading those updates first and over time. I don’t own IPGP. I do own INFN. And I am interested in IPGP. I own IDCC another tech company, but I eased into it slowly. If I bought IPGP it would be my third small interesting tech companies.

The price of the stock has soared, since I first placed them on Caps. I deleted it on caps, so I could add them again at what I felt was a lower price. I wish I had got it on yesterday. hehehe I have never owned this stock, but I am considering it now. So why am I considering it now? One reason sales and earnings are going up, but the big first quarter, just slightly below their historically strong and record fourth quarter sales makes me think it is trending in the right direction and makes them exciting to me. A good diversification when paired with INFN a company I do own.

Chinese Growth has been excellent. But strong growth in Japan and Germany shows it’s not just a U.S story. And that the U.S part of their business is quickly becoming the smaller and smaller part of the story.

North America sales in 2010 were $61.706 million or 20.6% of sales. Europe sales were $112.456 million or 37.6% of sales. Asia reported sales of 124.254 million or 41.5% of sales

The Company believes the resistance to fiber laser technology is waning. Fiber lasers save time and the costs to run them are less than conventional lasers. Starting with the fourth quarter, the company has seen a growing number of customers ordering their lasers in greater quantities.

For the material processing business, fiber lasers still only makes up a small part of the business. Lasers for this segment of business represent a $3 billion in annual sales. IPGP is a leader in producing fiber lasers and they believe that Fiber lasers will capture 30% of that market. And they expect to find other markets, other applications for their fiber lasers. They sell about 60% of the fiber lasers being sold. They believe the adoption of fiber lasers is in its infancy stages of growth. These things make me interested in buying.

The value isn’t cheap. A 1.1% cash flow yield isn’t cheap. The 46 PE isn’t cheap. But analysts believe they will make $2.24 this year and $2.80 in 2012. If they meet those estimates, the value will be much better. I seldom buy at one value point – I certainly wouldn’t suggest it with IPGP. But I am interested in buying some.

I would love to get them cheaper but that may not happen without a recession or a weaker economy. I think their future is very interesting, so I am considering buying a small position, a very small position at the present price. I may wait until I study it longer, but believe it worth considering. One caveat – they are dependent on a good economy. Another recession would hurt sales and hurt the stock price. This would give investors a better chance to buy at cheaper prices. If the economy continues to improve this should be a very good year for them based on the very strong first quarter report. Again in my opinion.

Analysts have done a horrible job predicting earnings. In 2009, they expected IPGP to make $0.66 in 2010, but instead they made $1.13. Today they expect them to make $2.24 in 2011. But with such a strong first quarter, I wonder how much they will miss those estimates?

Report this Post 3 Replies
Member Avatar Mliaom (49.88) Submitted: 7/19/2011 1:31:58 PM
Recs: 1

I'm really surprised that you are following this stock, at what price are you looking to start a position?

Member Avatar ryesgramdi (< 20) Submitted: 9/24/2011 10:25:22 AM
Recs: 1

Hi Tom
I did buy IPGP during the recession and I'm so glad to know you are following it. I was really excited about it's technology when I first read about it and I hope you will continue to report on it. My holding period for this one is forever. I believe it will be a multibagger. Hope you open a small position soon.
Dianne

Member Avatar Mliaom (49.88) Submitted: 12/23/2011 2:17:05 PM
Recs: 1

Hi Tom, Are you adding at these levels? Seems like a great bargain with PE down to 15. Almost down to a 52 week low of $29. Thanks

Tony

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