II-VI, Inc.: EV & 5G Play Set to Explode in 2022

Wall Street Sees 50% Upside With II-VI Stock

If you snoozed through high school chemistry or scoffed at the notion of ever having to use the periodic table in your everyday life, time has caught up with you (I’ll explain later).

II-VI, Inc. (NASDAQ:IIVI) is an excellent tech stock that touches several strong-growing end markets, including 5G and electric vehicles (EV).

From 2021 to 2026, the 5G market is expected to grow at a compound annual growth rate (CAGR) of 8.2%, while the automotive and energy market is projected to grow at a CAGR of 37%. (Source: “Investor Presentation: November 2021,” II-VI, Inc., last accessed January 5, 2022.)

Since 2010, II-VI (pronounced “two-six”) has made five transformative acquisitions, which have helped it generate 10 years of continuous revenue growth. Since fiscal 2011, II-VI, Inc.’s revenue has grown by 537% from $487.0 million to $3.1 billion.

While II-VI stock performed well in 2020, rising by 121%, it was a different story in 2021, with its share price actually going down by 10% that year.

The drop really had nothing to do with anything going on at II-VI, Inc. The company recently reported high revenue and earnings growth, record bookings, and a record backlog.

If anything, IIVI stock, like many growth stocks, took a back seat to value stocks, which are more economically sensitive and took advantage of the economic recovery.

On top of that, rising bond yields have taken the wind out of many tech stocks. Last spring, the yield on 10-year U.S. Treasuries climbed above 1.6%, its highest level in more than a year and up significantly from 1.1% at the start of 2021.

Higher bond yields, which move inversely to price, erode the value of future cash flows. That’s more so for growth companies than for mature, blue-chip (value) stocks.

Many tech companies are still in their early days of financial growth. As a result, shares of smaller, less-profitable growth companies are sensitive to interest rate hikes.

While II-VI, Inc. is hardly a small, money-losing company, investors tend to prefer stocks in either the value or growth camp and let the chips fall where they may. That’s a mistake investors probably won’t make in 2022.

Some will still argue about the benefits of value or growth investing, but in 2022, the most important thing will be finding individual stocks that can outperform the market.

That’s where II-VI, Inc. comes in. II-VI stock underperformed in 2021, but Wall Street sees it notching up serious gains in 2022.

Of the analysts providing a 12-month share-price target for IIVI stock, their average estimate is $82.11, with a high estimate of $104.00. At the current price of II-VI stock, that points to potential gains of 21% and 51%, respectively.

Chart courtesy of StockCharts.com

About IIVI Stock

II-VI, Inc. develops, manufactures, and markets engineered materials, optoelectronic components, and devices for use in the communications, automotive, consumer electronics, semiconductor, industrial, aerospace, defense, and life sciences industries. 

The company gets its name from groups II and VI of the periodic table of elements. By chemically combining elements from these two groups, II-VI, Inc. produces the infrared optical crystalline compounds cadmium telluride, zinc selenide, zinc sulfide, and zinc sulfide multiSpectral.

From this group, II-VI, Inc. produces a huge variety of application-specific photonic and electronic materials and components. Then it deploys them in various forms.

II-VI, Inc. also provides the silicon carbide substrates that are found in 5G mobile infrastructure, vehicles, 4G wireless radio heads, and 3D sensing in consumer electronics.

The company operates through two segments: Compound Semiconductors and Photonic Solutions. II-VI, Inc.’s biggest division is infrared optical communications, which is used in cloud computing, data centers, and telecommunications.

Acquisition of Coherent, Inc.

In 2021, II-VI won a three-way bidding war to acquire Coherent, Inc. (NASDAQ:COHR). (Source: “II-VI Incorporated to Acquire Coherent, Creating Global Leader in Photonic Solutions, Compound Semiconductors, and Laser Technology and Systems,” II-VI, Inc., March 25, 2021.)

For $7.0 billion, II-VI gets one of the world’s leading providers of lasers, laser-based technologies, and laser-based system solutions. The deal is expected to close in the first quarter of 2022.

The combined company will become a global leader in photonic, compound semiconductor, and laser technologies with approximately $4.1 billion in annual revenue.

The merger is expected to achieve $250.0 million in annual cost synergies to be realized within 36 months of closing the deal. The transaction is expected to be accretive to II-VI, Inc.’s adjusted earnings per share in the second year following the close of the deal.

Those expectations, however, could be a little conservative.

In September 2019, II-VI completed its acquisition of Finisar, creating one of the largest optics and photonics companies. In November 2021, II-VI’s CEO, Dr. Vincent D. Mattera, Jr., said, “Our synergies on the Finisar transaction now exceed $180M, which are well ahead of schedule.” (Source: “II-VI Incorporated Reports Fiscal 2022 First Quarter Results,” II-VI, Inc., November 9, 2021.)

Another Record Quarter

For the first quarter of fiscal 2022, ended September 30, 2021, II-VI announced that its revenue increased by 9.2% year-over-year to $795.1 million. (Source: Ibid.)

The company reported record bookings of $939.0 million, growing by 43% year-over-year, and a record backlog of $1.4 billion.

II-VI, Inc.’s first-quarter net income went up by 60% year-over-year to $74.5 million, or $0.50 per share. Its adjusted earnings advanced four percent year-over-year to $0.87.

Mattera noted, “Fiscal year 2022 is starting with very strong momentum and sustainable demand signals…” (Source: Ibid.)

For the second quarter of fiscal 2022, ended December 31, 2021, II-VI, Inc. expects to report revenue of $790.0 to $840.0 million and adjusted earnings per share of $0.75 to $0.95.

Analyst Take

II-VI, Inc. is a great technology company operating in some of the strongest-growing end markets, including 5G and EV.

The company has reported a solid balance sheet, excellent earnings and revenue growth, another quarterly bookings record, and a record backlog. II-VI also reported solid guidance.

Furthermore, the company expects to close on its blockbuster acquisition of Coherent, Inc. in the first quarter of calendar year 2022. This positions II-VI stock for solid growth in 2022.