Is Bottom Line Guidance To Blame In II-VI, Inc. (NASDAQ:IIVI) Valuation


II-VI, Inc. (NASDAQ:IIVI)’s strong F3Q2016 results seemed to have got investors celebrating and buying the stock. But the celebration didn’t last long as the stock pulled back in the last session. What triggered the investor caution in the stock? There might be several factors for the development, but a closer look at II-VI’s F4Q2016 guidance revealed to investors that there is something to worry about the future.

What’s expected in 4Q?

After excluding the effects of acquisitions, II-VI, Inc. (NASDAQ:IIVI) expects F4Q revenue in the band of $200 to $210 million. That signals potential growth from the just reported quarter and better than $196.7 million reported in a similar quarter a year ago. But the issue is on EPS. The company is guiding non-GAAP EPS in the range of $0.22 to $0.24. That’s lower than $0.27 a year ago and falls short of $0.35 in the latest quarter.

The pullback in the stock might be a direct consequence of tepid bottom-line guidance. However, the management of II-VI, Inc. (NASDAQ:IIVI) doesn’t appear to believe that the soft EPS guidance for the current should be a cause for alarm.  According to CEO, Francis Kramer, F4Q is shaping up to a strong quarter. One of the signs the CEO says indicates better things are lying ahead for the company is the record bookings registered in the latest quarter. The management also hopes that the acquisitions and investments they are making will pay off in F4Q and subsequent quarters, but some investors are skeptical of the promises.

What did the company earn in F3Q?

II-VI, Inc. (NASDAQ:IIVI)’s revenue rose 10% YoY to $2015.1 million, topping the company’s own guidance of $190 to $198 million. Non-GAAP EPS of $0.35 exceeded the consensus estimate of $0.28 and also surpassed the internal guidance of $0.26 to $0.29.

Strong performance in the Photonics and Performance Products segments fueled the gains.

Non-GAAP bookings in the latest quarter surged 19.2% to $233.3 million, exhibiting a faster growth than revenue.


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