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Zacks Industry Outlook Highlights: IPG Photonics, Lumentum Holdings and CyberOptics

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·8 min read
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For Immediate Release

Chicago, IL – February 1, 2021 – Today, Zacks Equity Research discusses Lasers - Systems & Components including IPG Photonics Corporation IPGP, Lumentum Holdings, Inc. LITE and CyberOptics Corporation CYBE,

Link: https://www.zacks.com/commentary/1253992/3-laser-stocks-to-watch-for-gains-in-a-challenging-industry

The Zacks Laser Systems and Components industry benefits from the growing consumer need for faster and higher precision volume manufacturing techniques with lower power consumption despite the coronavirus fallouts. Moreover, the near-term slowdown in China, Europe and North America is concerning.

However, upbeat demand from electronics, semiconductors and healthcare end-markets is a major growth driver. IPG PhotonicsLumentum Holdings and CyberOptics are well-positioned to benefit from these trends. Robust demand for high power continuous wave and pulsed laser for cutting and battery processing applications, growing demand for high-performance optical devices and ongoing adoption of cloud computing, autonomous driving, IoT and 5G are key catalysts for these industry participants.

Industry Description

The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, high precision 3D sensors, optical and photonic products, and scanning technology solutions. The key end-markets are semiconductor, metrology, advanced communication and medical devices.

3 Laser Systems & Components Industry Trends to Watch Out For

Emerging Applications Driving Demand for Lasers: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS, the technology that allows users to create 3D printable objects, control games with body gestures and measure objects, is much in demand.

Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. Notably, IoT-supported manufacturing equipment is far easier to update with firmware.

The combination not only reduces costs but also increases flexibility and reliability manifold by enabling material handling capabilities through remote sources. Additionally, strong demand from semiconductor and allied markets, which are seeing a rapid shift toward production of micro and nano devices, is a positive for industry participants.

Improving China Market Key Catalyst: Moderate improvement in the China market post coronavirus-induced disruptions bodes well for industry players like IPG Photonics, which has a significant exposure to the country's industrial laser market. However, weak demand in Europe and North America due to the COVID-19 outbreak is expected to hurt top-line growth, at least in the near term.

Moreover, the U.S. ban on Huawei is a bother. Inventory build-up at this Chinese tech giant worries its component suppliers, some of whom are customers of the Laser Systems and Components industry players.

Zacks Industry Rank Indicates Dim Prospects

The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #204, which places it in the bottom 19% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Despite a gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry picks, it is worth taking a look at the industry's shareholder returns and current valuation first.

Industry Outperforms Broader Industry and S&P 500

The Zacks Laser Systems and Components industry has outperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.

The industry has gained 44.7% over this period compared with the S&P 500's increase of 16.7% and the broader sector's rally of 41.9%.

Industry's Current Valuation

On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 10.31X compared with the S&P 500's 4.82X. It is also trading above the sector's trailing 12-month P/S of 6X.

Over the last five years, the industry has traded as high as 10.95X, as low as 4.20X and at the median of 6.86X.

3 Laser Stocks to Keep a Close Eye On

IPG Photonics: This Zacks Rank #2 (Buy) is well-positioned to gain from increasing demand across electric vehicle battery processing and advanced applications. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Robust uptick in demand for devices used in the medical industry also augurs well. Continued momentum in higher power products in core materials processing domain and strength in new solutions are expected to bolster the top line along with strength in its fiber & diode lasers, fiber amplifiers and transceivers portfolio.

Markedly, IPG Photonics is regarded as the pioneer and leader of the fiber lasers technology market. The company has a dominant position in the core material processing market on the back of its expertise in handling fiber lasers, which are more reliable, efficient, robust, compact and easier to operate than conventional lasers.

Improvements in their output power levels and cost as well as superior performance and lower cost of ownership have been driving the adoption of fiber-lasers. Moreover, IPG Photonics' vertically-integrated business model is a key differentiator in our view. Further, acquisitions have helped the company expand its product portfolio.

The Zacks Consensus Estimate for IPG Photonics' current-year earnings has moved up 1.7% to $4.92 per share over the past month. The stock has returned 75.1% in the past year.

CyberOptics: Shares of this Minneapolis, MN-based company have returned 7.5% in the past year. This Zacks Rank #3 (Hold) company is a leading provider of sensors and inspection systems that provide process yield and throughput improvement solutions for the global electronic assembly and semiconductor capital equipment markets.

Solid adoption of CyberOptics' high precision 3D Multi-Reflection Suppression (MRS™) based optical sensors for inspection and metrology in key vertical markets like Surface Mount Technology (SMT) and semiconductor are major growth drivers. Its solutions boosts customer yields, throughput and operating efficiency, thereby saving time and expenses. The company has solid growth potential in the market for Micro LED inspection, advanced packaging and metrology.

The Zacks Consensus Estimate for CyberOptics' current-year earnings has stayed at 75 cents per share over the past 30 days.

Lumentum Holdings: Based in Milpitas, CA, this Zacks Rank #3 company offers optical and photonic products. The stock has rallied 23.1% in the past year.

Lumentum is well-poised to benefit from the growing need for bandwidth and scalable data centers. Expanding bandwidth requirements and flexibility of communications networks are major growth drivers. Further, the company's solutions enable computer vision biometric security, AR/VR, LiDAR and computational photography.

The consensus mark for fiscal 2021 earnings has moved 0.5% north to $6.19 per share over the past 30 days.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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