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Laser Firms Blast Q2 Earnings Marks: Zacks Industry Rank Analysis

John Blank

The 6-company strong Laser Systems and Components industry is having its moment in the sun.

According to our Zacks Industry Rank system, the Laser Systems industry came in at #17 out of 256 industries we ranked on September 24th, 2019.

Perhaps ‘sourcing inspiration from the sun’ is the appropriate language to use?

The Zacks Heat Map shows the red-hot glow picked up 6 weeks ago. In short, a few key companies in the small space delivered outsized earnings beats in the second quarter.

A month ago, when a number of August laser company earnings beats got picked up by our earnings estimate system, the Laser Systems industry catapulted from a middling spot at #110 to a very attractive pole position of #25 (top 10%).

British science writer Chris Woodford gives us the best online laser industry narrative –

“Lasers are amazing light beams powerful enough to zoom miles into the sky or cut through lumps of metal.

“Although they seem pretty recent inventions, they've actually been with us over half a century: the theory was figured out in 1958; the first practical laser was built in 1960.

“At that time, lasers were thrilling examples of cutting-edge science: secret agent 007, James Bond, was almost chopped in half by a laser beam in the 1964 film Goldfinger. But apart from Bond villains, no-one else had any idea what to do with lasers; famously, they were described as ‘a solution looking for a problem.’

“Today, we all have lasers in our homes (in CD and DVD players), in our offices (in laser printers), and in the stores where we shop (in barcode scanners).

“Our clothes are cut with lasers, we fix our eyesight with them, and we send and receive emails over the Internet with signals that lasers fire down fiber-optic cables.

“Whether we realize it or not, all of us use lasers all day long, but how many of us really understand what they are or how they work?

“The basic idea of a laser is simple. It's a tube that concentrates light over and over again until it emerges in a really powerful beam.”

I list three attractive Zacks Rank laser stocks, in order of market capitalization—

(1) Lumentum Holdings Inc. (LITE): This is a $58 dollar a share stock, with a market cap of $4.5 billion. This makes it the granddaddy mid-cap stock in the group of three.

Both the Zacks #2 (BUY) Rank and the Zacks Growth score of A are very attractive.

In fact, over the past month of August 2019, current quarter earnings estimates for LITE rose from $1.09 per share to $1.19 per share. In addition, current year 2019 earnings estimates rose from $4.45 per share to $4.54 per share.

The company manufactures a number of innovative optical and photonic products for the broader Info Tech sector ecosystem.

The company's two operating segments are Optical Communications and Commercial Lasers.

Optical Communications segment portfolio includes products used by Telecom and Datacom nanoelectromechanical systems and traditional as well as cloud/data center service providers.

Commercial Lasers segment products serve its customers in markets and applications, such as manufacturing, biotechnology, graphics and imaging, remote sensing and precision machining.

Lumentum Holdings Inc. is headquartered in Milpitas, California.

(2) Cutera Inc. (CUTR): This is a small-cap stock at a share price of $31 and a market cap of $437 million. It is currently a Zacks #2 Rank (BUY) stock.

Overall, Cutera had a great Q2. Revenue of $48 million beat our consensus estimate and rose +12% year-over-year, marking the highest sales level in the company’s history. Earnings of $0.04 per share easily beat the Zacks Consensus for a loss of 16 cents, with net income of $0.6 million.

The company saw strong growth internationally—revenue grew +36% year-over-year in its international segment—and nice gains across Japan, Europe and Asia all contributed to Cutera’s growth this past quarter.

As a result, CUTR shares shot up +34% after releasing its Q2 earnings in August.

This company focuses on laser applications for the Health Care sector. The company designs, develops, manufactures and markets the CoolGlide family of products for use in laser and other light-based aesthetic applications:

  • The original CoolGlide CV provides permanent hair reduction on all skin types
  • The second generation CoolGlide Excel incorporated features that added the capability to treat a variety of vascular lesions, which include facial telangiectasia, spider and reticular leg veins
  • The CoolGlide Vantage added non-ablative skin therapy to the range of applications offered by the system

 

(3) Iridex Corp. (IRIX): This is a $1.57 share price stock. The 52-week high on the stock is $6.67 a share. Currently, the market cap is $28 million, making it a microcap. It is a Zacks #1 Rank (STRONG BUY) stock.

In its recent August 2019 earnings report, it came out with a loss of -$0.18 a share, versus the consensus estimate for -$0.22. This was also much better than the loss of -$0.28 a share a year ago.

The company is the leading worldwide provider of semiconductor-based laser systems used to treat eye diseases in ophthalmology and skin lesions in dermatology.

The products are sold in the United States predominantly through a direct sales force and internationally through independent distributors.

The company markets the products using three brand names:

  • IRIS Medical to the ophthalmology market
  • IRIDERM to the dermatology market, and
  • Light Solutions to the research market

 

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