II-VI Looks Strong Ahead Of Earnings
On April 25, II-VI, Incorporated (Nasdaq:IIVI), a company that trades on the Nasdaq under the symbol IIVI, is scheduled to release its third quarter earnings report for the fiscal year 2017. The earnings reporting date seems to be firm according to an algorithm used by Zacks, and stock investors are paying close attention to IIVI as the date approaches.
IIVI is dedicated to the development and manufacturing of precision materials and components for use across various industries. The bulk of their products are destined for laser and fiber optic applications. Aside from imaging and medical applications, the components developed by IIVI can also be used for fast and secure data communications in settings such as cloud computing data centers.
IIVI has an excellent track record of beating analyst expectations and trading higher in the wake of the firm's earnings reports. In fact, the earnings per share ratio reported by the company has been higher than analysts' expectations more than 65 percent of the time. IIVI's EPS has beat analyst expectations during the last 12/12 earnings periods.
IIVI revenues also have a strong history of beating analyst expectations, topping these estimates more than 70 percent of the time. During 11/12 of the most recent quarters, IIVI revenues have topped expectations.
Looking at the trading history of this stock over the last 12 quarters, investors who have purchased shares ahead of the earnings release have benefited from gains during the trading session immediately following the earnings release. Shares have gapped higher in 12/12 of the most recent quarters following the company's earnings report. In 11/12 of the most recent quarters, shares of IIVI have had a positive 1-day gain in the first trading session following the release of earnings.
The current whisper numbers on Wall Street for the upcoming IIVI earnings report carry an 88.5 percent chance of an EPS surprise based on the average four-quarter EPS surprise of 59.2 percent.
Our firm has employed a mid-cap earnings trading session over the past 6 years and have found that companies with a strong history of delivering solid results often continue to produce positive results. This is especially true when the companies have a strong history of reacting well to earnings results - as is the case with IIVI.
Over the past 6 years, we have invested in 2002 companies ahead of their earnings reports, selecting firms based primarily on their history of delivering solid earnings results. Over this period, 57.99% of the time these selected firms have moved higher.
In the case of IIVI, we believe that there is a significant chance that shares will move higher in anticipation of earnings and once earnings are released due to another factor: IIVI has guided higher during both of the most recent quarters. When earnings results are released, the company is already well into the next quarter.
When a company guides higher, they generally already know that the next quarter looks positive for the company. This vote of confidence makes us more confident in the firm. We also believe that news of increased guidance tends to play out over the course of a couple of quarters, disseminating to investors. We believe that higher guidance the last couple of quarters will continue to boost shares as Q1 2017 earnings results approach.
Qualifying the Positive Sentiment of IIVI
There is a lot to like about IIVI ahead of earnings. At the recent Optical Fiber Communications 2017 Conference, the company introduced a new laser module that can be used by data centers whose operations require high bit-rate transceivers. We believe that this is a positive because global demand for these modules is expected to increase by more than 20 percent by the end of the decade as cloud computing data centers increase their client base.
We also believe that excitement over the use of II-VI's laser technology in smartphones will continue to draw attention to the stock. Reiterating the firm's buy rating and $40 price target, The Benchmark Company's Mark Miller noted that:
"In our recent meetings with investors, II-VI management emphasized that its U.S. VCSEL ramp will primarily occur in 2018. Also, the intro of Samsung's Galaxy S8 phone did not include VCSEL-based sensing technology. While we believe these reports have recently pressured II-VI's shares, we believe potential iPhone 8 delays, concerns about Lumentum and Finisar meeting the iPhone 8 VCSEL ramp and Samsung's decision to hold off on VCSEL-based sensors are rather good news for II-VI, and potentially bad news for the assumed first movers: Lumentum and Finisar. Thus, we would use any weakness as a buying opportunity."
There is another fact to consider as well: Over the last quarter, shares of IIVI have climbed by more than 17 percent and by more than 60 percent on a year-over-year basis.
Overall, IIVI is a very enticing opportunity for investors who like fundamental factors such as positive news, a strong history of earnings report, and good whisper numbers.
As long as the company continues to release quality solutions for the data communications industry, demand will be high for its products.
We recommend scooping up shares now and holding them through the release of earnings.
Disclosure: I am/we are long IIVI.
Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship ...
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