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Why II-VI Shares Rose 38% Last Month

By Anders Bylund – Updated Jun 8, 2020 at 10:43AM

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The maker of industrial laser components and systems is enjoying strong order volumes during the COVID-19 crisis.

What happened

Shares of industrial lasers specialist II-VI (IIVI -2.97%) gained 38.1% in May, according to data from S&P Global Market Intelligence. The surge hinged on a single-day gain of 25%, which in turn was based on a fantastic third-quarter earnings report.

So what

II-VI's first-quarter sales nearly doubled year over year from $343 million to $627 million, while adjusted earnings fell 24% to $0.47 per share. Your average Wall Street analyst would have settled for earnings near $0.14 per share on revenue in the neighborhood of $575 million.

The company also reported record bookings and backlogs of unfilled orders, which allowed management to post fourth-quarter guidance well ahead of the consensus analyst outlook at the time.

Photo of 5 fiber lasers cutting through a sheet of steel.

Image source: Getty Images.

Now what

The merger with Finisar, which was completed in September 2019, explained II-VI's huge revenue jump and lower earnings. The company exceeded its own and Wall Street's expectations thanks to strong execution during the COVID-19 crisis.

"We've been told by one large OEM that U.S. [network] traffic increased in the first week of the nationwide shelter-in-place orders by more than the increase for the entire prior year," CEO Chuck Mattera said in the first-quarter earnings call. "I firmly believe that the beginning of a large and multiyear opportunity for II-VI is unfolding."

The completion of the Finisar merger couldn't have come at a better time. II-VI's stock has gained 55% over the last 52 weeks, but it still looks affordable at 17 times forward earnings estimates.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends II-VI. The Motley Fool has a disclosure policy.

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II-VI Incorporated Stock Quote
II-VI Incorporated
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