Shares of laser-maker II-VI Inc. (NASDAQ:IIVI) surged 8.2% on Friday after the stock received a positive mention in a Morgan Stanley note describing investment opportunities "in the optical space." This capped a week that saw II-VI add 9.6% to its market capitalization.
Citing "strong" secular tailwinds from such technologies as facial recognition, optical networking, and industrial lasers, Morgan Stanley named II-VI -- pronounced "two-six" -- its top pick in this subindustry. The analyst initiated coverage of II-VI with an overweight rating and a $46 price target, reports TheFly.com.
II-VI boasts a diversified customer base and differentiated processes that should enable it to generate more consistent earnings growth than its laser-making peers. In that regard, S&P Global Market Intelligence shows analysts, on average, predicting that II-VI will grow its sales at roughly 13.6% annually over the next five years.
Here's the really good part: Morgan Stanley, in particular, argues that "volume and yield improvement" should enable II-VI to grow its profit 50% to 100% faster than that 13.6% sales-growth rate -- implying a profit growth rate of as much as 27% annualized.
That's not just better than II-VI's peers are expected to do -- it's potential earnings growth that's nearly twice as fast as the 15% rate that the rest of Wall Street predicts II-VI will achieve. No wonder investors took such a shine to this laser maker on Friday.