Shares of IPG Photonics (IPGP), Coherent (COHR), and nLight (LASR) are slipping after Northcoast analyst Tom Hayes downgraded all three stocks to Neutral as he sees considerable headwinds remaining in place. His peer at Stifel also lowered IPG Photonics and nLight’s targets following the former’s negative preliminary quarterly results announced on Friday.
MOVING TO THE SIDELINES: In a research note to investors this morning, Northcoast’s Hayes downgraded IPG Photonics, Coherent, and nLIGHT to Neutral from Buy as he sees considerable headwinds remaining in place, which will likely constrain unit volume growth over the next few quarters and into 2019. While the analyst pointed out that he continues to expect that industrial lasers, especially fiber lasers, will become an important tool in global manufacturing, the near-term challenges and lack of visibility are moving him to the sidelines as he expects the headwinds to extend into FY19 as trade and tariff issues weigh on demand. Hayes also noted that China is a significant market for laser demand, but its outsized component of total revenue adds some risk to operations. Based on the most recently published reports, trailing 12-month revenue in China represented 43% of IPG revenue, 9% of Coherent revenue, and 39% of nLight’s revenue, he added, highlighting that his survey work, as well as commentary from IPG during its second-quarter earnings, call point to pricing pressure in the lower range of the high-power laser market in China. Currently, the majority of the pricing actions remain isolated to the China market, but Hayes believes there is an increased risk that pricing compression could expand to other geographies and further weigh on margin levels. The analyst also cited IPG Photonics’ pre-announced third-quarter results, which fell short of guidance as demand trends trailed off throughout the quarter.
TARGET CUTS: While reiterating Buy ratings on both IPG Photonics and nLight, Sitfel analyst Patrick Ho lowered his estimates and price targets on the stocks to $190 from $228 and $32 from $40, respectively, following IPG’s negative preannouncement. In addition to geopolitical concerns, Ho noted that he believes capacity digestion and a more intense competitive environment are impacting IPG’s outlook near-term and his forecasts in 2019, and will also have some impact on nLight. Nonetheless, the analyst remains firm in his favorable thesis in the later as he believes nLIGHT can continue to outperform the industry, driving additional share gains in higher power laser applications and outpacing overall industrial market trends. Further, Ho sees nLight’s new share wins will help offset some of the ASP pressures, but not completely given the magnitude that pricing pressures have taken hold. Meanwhile, DA Davidson analyst Thomas Diffely lowered his price target on IPG Photonics to $200 from $220 after the company lowered its third-quarter revenue outlook as a result of tariff and trade-related concerns in China and Europe.
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