5 Reasons B Riley Turned Bullish On II-VI

II-VI, Inc. IIVI, an electronic component manufacturing company, presented last week at the OFC Conference and management's takeaway in part helped turn B Riley bullish on the stock.

The Analyst

B Riley FBR's Dave Kang upgraded II-VI's stock from Neutral to Buy with a price target lifted from $40.50 to $55.

The Thesis

The case for being bullish on II-VI's stock is five-fold, Kang said in a note.

The biggest takeaway from the event is that demand for II-VI's industrial labels is strong and optical demand is improving. This also holds true in China as the country could deploy over six million 5G base stations which represents a $300 million opportunity for II-VI.

SiC technologies have been around for a few years, but SiC applications are only starting to emerge now, the analyst said. II-VI's management estimates the SiC substrate market would be worth around $300 million in 2022 and the company could eventually supply SiC chips, which would expand its total addressable market by "several fold."

The other bullish factors include:

• II-VI is strategically positioned to benefit from the growing 3DS market;
• The analyst's checks found II-VI is tracking above the fiscal third quarter consensus estimates; and
• Incremental revenue growth will likely result in operating margin expansion from 11.9 percent in fiscal 2017 to 15.6 percent in fiscal 2019 and 18.5 percent the following year.

Price Action

Shares of II-VI were trading higher by nearly 5 percent late Tuesday morning.

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