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What's in the Cards for IPG Photonics (IPGP) in Q4 Earnings?

Zacks Equity Research

IPG Photonics Corporation IPGP is scheduled to report fourth-quarter 2018 results on Feb 12.

The company delivered third-quarter 2018 adjusted earnings of $1.87 per share, beating the Zacks Consensus Estimate by a couple of cents.

However, revenues declined 9% from the year-ago quarter to $356.3 million and lagged the Zacks Consensus Estimate of $359 million.

Uncertainty in macroeconomic environment and geopolitical factors reduced demand in China which impacted the third-quarter revenues.

Notably, IPG Photonics stock has shed 37.8% in the past year, compared with the industry’s decline of 34.3%.

Guidance & Estimates

Owing to macroeconomic headwinds, foreign exchange currency fluctuations and geopolitical tension, the company provided cautious fourth-quarter guidance. Management anticipates tariffs and trade associated challenges in China and Europe to impact results.

For fourth-quarter 2018, IPG Photonics anticipates sales in the range of $300-$330 million.

The Zacks Consensus Estimate for sales is currently pegged at $314.3 million, indicating a decline of almost 13% from the year-ago quarter.

Earnings are projected in the range of 1.30-$1.50 per share. Notably, estimates have remained stable in the past 30 days. The Zacks Consensus Estimate for earnings is pegged at $1.43 cents per share, indicating year-over-year decline of 23.1%.

Let’s see how things are shaping up prior to this announcement.

Factors Likely to Impact Q4 Results

Sturdy demand for a variety of products, particularly welding, cutting systems, and government applications across North America, is likely to aid the to-be-reported quarter’s financials.

The company has a dominant position in the core material processing market on the back of its expertise in fiber laser technology.

Management is optimistic on the growing clout of IPG Photonics’ recently unveiled smallest 20 kilowatt cutting laser. The incremental adoption of the latest offering is anticipated to aid the top line in the to-be-reported quarter.

In fact, in the last reported quarter, adoption of 6 kilowatts and above fiber lasers improved more than 10% on a year-over-year basis. Robust adoption of cutting systems (primarily in Japan) and notable demand across aerospace drilling applications is anticipated to aid high-power laser domain.

However, the Zacks Consensus Estimate for high power CW lasers revenues is pegged at $185 million for the fourth quarter, down from $233 million in the prior-year period. The anticipated decline can be attributed to sluggish demand in China.

Although, medium power laser sales declined 48% on a year-over-year basis in the third quarter, strength in welding applications is anticipated to bolster revenues in the to-be-reported quarter. The Zacks Consensus Estimate for medium power lasers revenues is projected to be $26.52 million, above $25.39 million in the year-ago quarter.

Notably, IPG is gradually expanding into new end-markets like advanced applications (3D Printing, Cinema, and micro-materials processing), communications and medical based on robust product portfolio and strength in intellectual property (IP).

In fact, the company is developing new medical applications using fiber lasers for urological and dental procedures. The expansion into new end-markets is anticipated to eventually lower exposure to the core material processing market, which is a positive.

Notably, sales of beam delivery products and systems advanced around 20% on a year-over-year basis in the third quarter, which can be primarily attributed to strength in micro-materials and other emerging applications.

However, dependence on select customers and substantial exposure to China amid tariff imposition are primary headwinds anticipated to impact IPG Photonics’ fourth-quarter results.

IPG Photonics Corporation Price and EPS Surprise

IPG Photonics Corporation Price and EPS Surprise | IPG Photonics Corporation Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

IPG Photonics has a Zacks Rank #3 and an Earnings ESP of 0.00%. This makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks that Warrant a Look

Here are some stock you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Portland General Electric Company POR has an Earnings ESP of +4.19% and a Zacks Rank #1. The company is slated to report fourth-quarter 2018 earnings on Feb 15. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ameren Corporation AEE has an Earnings ESP of +1.68% and a Zacks Rank #1. The company is set to report fourth-quarter earnings on Feb 14.

ALLETE Inc ALE has an Earnings ESP of +5.26% and a Zacks Rank #2. The company is scheduled to report fourth-quarter 2018 results on Feb 14.

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