II-VI Stock: A Multi-Tailwinds Laser Play

Optical and photonics components maker II-VI (NASDAQ:IIVI) stock is down nearly (-40%) from its 2021 highs of $101.44 after a nearly 5X run up from its pandemic lows. The maker of industrial optical electronics and laser components is should be getting larger thanks to its upcoming merger with laser maker Coherent (NASDAQ:COHR) due to be completed by the end of 2021 pending a June 24, 2021, shareholder vote.

The combined entity will be a powerhouse in the photonic, compound chips, and laser systems segment benefiting from multiple tailwinds driven by 5G rollout, cloud migration, LiDAR (light detection and radar) applications, and electric vehicles (EVs). The Company also continues to bolster its business and sales with Apple (NASDAQ: NASDAQ:AAPL), which should grow stronger from the Coherent acquisition. Prudent investors looking for a discounted entry into a pure 5G components play, can watch shares for opportunistic pullbacks for exposure. Prudent investors looking for exposure in a multi-tailwind play can monitor shares for opportunistic pullback levels to consider scaling into a position.

Q3 Fiscal 2021 Earnings Release

On May 6, 2021, II-VI reported its fiscal Q3 2021 results for the quarter ending Mar 2021. The Company reported earnings-per-share (EPS) of $0.91 versus consensus analyst estimates for $0.87, a $0.04 beat. Revenues rose 25% year-over-year (YoY) to $783.2 million, beating analyst estimates for $772.08 million. The Company ended the Q with a record $1.13 billion in backlog with a book-to-bill ratio of 1.08.

Lowered Q4 Fiscal 2021 Guidance

II-VI lowered its Q4 fiscal 2021 EPS range to $0.63 to $0.83 versus the $0.92 consensus analyst estimates. Revenues are expected to come in between $752 million to $802 million versus $795.93 analyst estimates.

Conference Call Takeaways

CEO Chuck Mattera set the tone:

“We saw no signs of weakness in demand for our optical communications product. And our current industry checks support by our strong backlog underscore our view that demand will remain strong for our data comm transceivers, coherent optics and ROTEM products.”

He noted that supply chain shortages only affected less than 1% of sales however disruptions is expected in the next quarter, “Our relatively wide Q4 guidance range reflects that the output of our transceiver business may begin to be affected by supply chain shortages.”

Additionally, COVID safety precautions may impact output throughout locations worldwide. He summed it up, “We are exposed to strong growth drivers implied by mega market trends that we are enabling… Looking ahead to the impact of announcements of infrastructure stimulus investments, the start of an apparent multiyear cycle in semi cap equipment, along with other irreversible mega trends that underpin mobile, intelligent and electric, we continue to be very excited.” The growth of semiconductor foundries will help drive its semi cap businesses.

Coherent Acquisition and Apple Halo

CEO Mattera chimed in on the Coherent acquisition;

“As of Mar. 25, we were selected as the successful bidder for Coherent… Coherent will add complementary strength to II-VI with their expertise in industrial laser solutions for precision manufacturing, and the focus on the markets and applications for Life Sciences, semi cap equipment, and aerospace and defense, three of II-VI’s important emerging markets.”

The merger will provide expansion opportunities to new markets while providing synergies. II-VI also received a $410 million award from Apple’s Advanced Manufacturing Fund under a multi-year agreement for future business. II-VI’s 3D sensing VCSEL laser critical to Apple’s LiDAR technology has been is used in higher end Apple iPads and iPhones since 2020. The scanner enables the ability to sense distance of surrounding areas and objects to create instant maps both indoors and outdoors enabling many applications like Night mode portraits on the iPhone 12 Pro. II-VI will be a key player in the aforementioned mega trend tailwinds especially with the Coherent acquisition.

II-VI Stock Chart

IIVI Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for IIVI stock. The weekly rifle chart formed an inverse pup breakdown upon falling under the daily market structure high (MSH) trigger at $80.59. The weekly downtrend has a falling 5-period moving average (MA) at $67.73 powered by the bearish stochastic mini inverse pup.

The weekly lower Bollinger Bands (BBs) sit near the $53.52 Fibonacci (fib) level. The daily rifle chart formed an uptrend and stochastic mini pup breakout upon triggering the daily market structure low (MSL) on a breakout through $64.40. Shares peaked at the $67.07 fib with daily rising 5-period MA support at $64.70. Prudent investors can monitor for opportunistic pullback levels at the $64.40 weekly MSL trigger, $62.29 fib, $60.63 sticky 5s level, $59.09 fib, $56.58 fib, and the $53.52 fib. Upside trajectories range from the $80.59 fib up to the $96.53 fib level.

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