IIVI - Embedded Expectations Analysis - 2020 07 24
II-VI Incorporated (IIVI:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 16.0x Uniform P/E, implying bearish expectations for the firm, and management may be concerned about the scalability of production, the sustainability of communication business growth, and their potential in the military marketSpecifically, management may lack confidence in the sustainability of increased demand from service providers upgrading infrastructure. They may also be concerned about their ability to keep pace with a large ramp in demand, as well as limit shortages and reworks as they scale production. Furthermore, they may be concerned about the sustainability of their communication business's growth, and about their potential as a full line supplier for 5G. They may also be exaggerating their potential in the military market in the US, and may be concerned about the limits their platform has with the US military
II-VI develops, manufactures, and markets engineered materials, optoelectronic components, and devices for a range of applications. The company has three segments: II-VI Laser Solutions, which designs, manufactures, and markets optical and electro-optical components and materials sold under the II-VI Infrared brand name; II-VI Photonics, which manufactures crystal materials, optics, microchip lasers, and optoelectronic modules for use in optical communication networks and other consumer applications; and II-VI Performance Products, which designs, manufactures, and markets infrared optical components and optical assemblies for aerospace and defense, medical and commercial laser imaging applications.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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