Stock to Avoid: II-VI Inc. - Analyst Blog

Zacks Investment Research downgraded II-VI Incorporated (IIVI) to a Zacks Rank #5 (Strong Sell) on Mar 12, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.

Why the Downgrade?

Shares of II-VI Incorporated fell 4.6% after the company released its second-quarter fiscal 2014 (ended Dec 31, 2013) results on Jan 28. Adjusted earnings per share from continuing operations were 13 cents, down 38.1% year over year. The bottom-line result also fell short of the Zacks Consensus Estimate of 17 cents.      

Revenues in the quarter increased 37.3% year over year to $171.8 million. The top-line growth was partially offset by an increase of 52.1% in cost of sales leading to a contraction of roughly 670 basis points (bps) in gross margin. Operating expenses in the quarter increased 59.3% year over year.

Fiscal second-quarter 2014 results triggered downward revisions in earnings estimates for II-VI Incorporated. In the last 30 days, the Zacks Consensus Estimate has decreased 13.6% to 76 cents for fiscal 2014 and by 5.0% to $1.13 for fiscal 2015. The estimate for fiscal 2014 reflects a year-over-year decline of 16.5%.

Disappointing second-quarter results as well as a negative average earnings surprise of 3.3% have made us dubious about II-VI Incorporated's performance in the coming quarters.
 
Other Stocks to Consider

II-VI Incorporated is a $1.03 billion company operating in the machinery industry. Some better-ranked stocks in the industry include EnerSys (ENS), Franklin Electric Co., Inc. (FELE) and Komatsu Ltd. (KMTUY), all of which carry a Zacks Rank #2 (Buy).