Chicago, IL – March 31, 2023 – Today, Zacks Equity Research discusses IPG Photonics IPGP and Lumentum LITE.
Industry: Laser
Link: https://www.zacks.com/commentary/2072607/2-laser-stocks-to-watch-in-a-challenging-industry
The Zacks Laser Systems and Components industry suffers from the pandemic-induced supply-chain disruptions, including parts and labor shortages. A strong U.S. dollar, and raging inflation, weak economic conditions in Europe and lockdowns in China are major headwinds. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of industry participants.
Nevertheless, upbeat demand from electronics, semiconductors and healthcare end-markets is a major growth driver. IPG Photonics and Lumentum are well-positioned to benefit from these trends. Robust demand for high-power continuous wave and pulsed laser for cutting and battery-processing applications, growing demand for high-performance optical devices, and the ongoing adoption of cloud computing, autonomous driving, IoT and 5G are the key catalysts for industry participants.
The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, optical and photonic products, and scanning technology solutions. The key end markets are semiconductors, metrology, advanced communication and medical devices. Industry participants also provide high-precision 3D sensors, and system products for inspection and metrology.
Moreover, in the medical devices space, laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. Developing safe and effective aesthetic treatments has resulted in a well-established market for these procedures. The company also operates in the cyclical surface mount technology and semiconductor capital equipment markets.
Emerging Applications Driving Demand for Lasers: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS — the technology that allows users to create 3D printable objects, control games with body gestures and measure objects — is in demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. IoT-supported manufacturing equipment is far easier to update with firmware. The combination reduces costs, and increases the flexibility and reliability manifold by enabling material-handling capabilities through remote sources. Strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is another positive for industry participants.
Supply-Chain Disruption Hurts Prospect: Industry participants suffer from the pandemic-induced supply-chain disruptions. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of the industry participants. Moreover, raging inflation, a strong U.S. dollar, energy headwinds in Europe and COVID-related lockdowns in China are expected to hurt industry participants in the near term.
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #184, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries results from the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Mar 31, 2022, the Zacks Consensus Estimate for the industry’s earnings for 2023 has declined a whopping 29.8%.
Despite the gloomy outlook, there are a couple of stocks worth watching in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector, and the S&P 500 composite over the past year.
The industry has declined 28.5% over this period against the S&P 500’s fall of 12.1% and the broader sector’s slip of 18.7%.
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 5.71X compared with the S&P 500’s 3.54X. It is also trading above the sector’s trailing 12-month P/S of 3.72X.
Over the last five years, the industry has traded as high as 12.64X, as low as 3.19X and at the median of 6.24X.
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber and diode lasers, fiber amplifiers, and transceivers for diverse applications like materials processing, advanced applications, communications and medical. The stock has declined 6.7% in the past year.
IPG Photonics is riding on strong demand for its core material processing product. It is benefiting from accelerated growth in welding, marking, and 3D printing in North America and Japan. Strong demand for AMB lasers and high-power pulse lasers is driving IPG’s growth, particularly from electric vehicle battery manufacturers. The company is benefiting from improving demand for solar cell manufacturing applications.
The Zacks Consensus Estimate for IPGP’s 2023 earnings has been unchanged at $4.75 per share in the past 30 days. IPG Photonics currently has a Zacks Rank #3 (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lumentum: This San Jose, CA-based company is a well-known provider of optical and photonic products addressing a range of end-market applications, including optical communications and commercial lasers for manufacturing, inspection and life-science applications.
Lumentum is benefiting from strong customer demand for its communications products, which are essential for multi-year expansions in next-generation optical network capacity that are just beginning to be deployed.
LITE shares have declined 46.8% in the past year. The consensus mark for this Zacks Rank #3 company’s 2023 earnings has been unchanged at $5.33 per share over the past 30 days.
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
IPG Photonics Corporation (IPGP) : Free Stock Analysis Report
Lumentum Holdings Inc. (LITE) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
