It's been a sad week for II-VI Incorporated (NASDAQ:IIVI), who've watched their investment drop 20% to US$29.25 in the week since the company reported its quarterly result. Revenues came in at US$340m, in line with estimates, while II-VI reported a loss of US$0.39 per share, well short of prior analyst forecasts for a profit. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings consensus estimates to see what could be in store for next year.
Following the latest results, II-VI's twelve analysts are now forecasting revenues of US$2.22b in 2020. This would be a sizeable 60% improvement in sales compared to the last 12 months. Earnings are expected to tip over into lossmaking territory, with analysts forecasting losses of -US$1.55 per share in 2020. Yet prior to the latest earnings, analysts had been forecasting revenues of US$2.36b and earnings per share (EPS) of US$2.15 in 2020. There looks to have been a significant drop in sentiment regarding II-VI's prospects after these latest results, with a small dip in to revenues and analysts now forecasting a loss instead of a profit.
The consensus price target fell 14% to US$40.50, with analysts clearly concerned about the company following the weaker revenue and earnings outlook. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. The most optimistic II-VI analyst has a price target of US$48.00 per share, while the most pessimistic values it at US$30.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await II-VI shareholders.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. Analysts are definitely expecting II-VI's growth to accelerate, with the forecast 60% growth ranking favourably alongside historical growth of 15% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 5.0% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that II-VI is expected to grow much faster than its market.
The Bottom Line
The biggest low-light for us was that the forecasts for II-VI dropped from profits to a loss next year. Unfortunately analysts also downgraded their revenue estimates, although industry data suggests that II-VI's revenues are expected to grow faster than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of II-VI's future valuation.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for II-VI going out to 2024, and you can see them free on our platform here..
It might also be worth considering whether II-VI's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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