IPG Photonics Upgraded To Buy At Canaccord; 'Brexit Enhances Already Attractive Entry Point'

Cancaccord Genuity has upgraded IPG Photonics Corporation IPGP to Buy from Hold, saying, "Brexit enhances already attractive entry point."

Already having lagged year-to-date performance for Cancaccord's Manufacturing Technology coverage universe prior to Brexit results, the stock declined another c.10 percent over the two sessions post referendum (direct U.K. revs <5 percent).

Analyst Bobby Burleson highlighted the company's low U.K. exposure despite potential risk from softness in Europe, which accounts for 30 percent of revenue.

Justification

The analyst's Buy thesis is centered on:

• "Fiber lasers continue to gain share and underpin long term growth prospects."
• "New technology developments are expanding TAM."
• "Better machine tool bookings indicate China is poised to show muted demand recovery in 2H. Should boost investor confidence and valuation multiples."

Burleson noted that the worst of the negative revisions are behind the company with guidance for 2016 already reduced from "teens" revenue growth to a more modest 5–10 percent growth.

Related Link: FBR Capital Initiates Coverage On IPG Photonics At Market Perform, Announces $92.00 PT

The analyst reiterated his second-quarter EPS/revenue forecast of $1.19/$242 million, while slashing 2016 EPS/revenue estimate to $4.62/$958.2 million from $4.66/$963.1 million.

Meanwhile, the analyst continued that the company's long-term opportunity remains intact based on an outlook for continued fiber laser share gains in metal processing, while valuation is near trough levels going back nearly four years.

Being a first mover in the development of fiber lasers, the analyst said, "IPG has significant competitive advantages through which the company is poised to capitalize on the upcoming strong growth and enhanced adoption."

"Even with a softer than expected recovery, however, we believe a return to solid Y/Y growth will boost investor confidence and allow for valuation expansion that more than compensates for short term incremental negative revisions," Burleson added.

Burleson also raised his price target to $90 from $85, while the shares of IPG were up 2.21 percent to $79.45 at time of writing.