IT Hardware Stocks

IPG Photonics Corp Valuation – June 2018 $IPGP

Company Profile (excerpt from Reuters): IPG Photonics Corporation, incorporated on December 2, 1998, is a developer and manufacturer of a line of fiber lasers, fiber amplifiers, diode lasers, laser systems and optical accessories that are used for various applications. The Company offers a line of lasers and amplifiers, which are used in materials processing, communications and medical applications. The Company sells its products globally to original equipment manufacturers (OEMs), system integrators and end users. The Company’s manufacturing facilities are located in the United States, Germany and Russia. The Company offers laser-based systems for certain markets and applications. The Company also makes packaged diodes, direct diode lasers, laser systems and communications components and systems. Its products are designed to be used as general-purpose energy or light sources.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of IPGP – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,261,465,405 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 9.54 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 432.79% Pass
6. Moderate PEmg Ratio PEmg < 20 39.29 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.35 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 9.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.03 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.29
MG Growth Estimate 15.00%
MG Value $242.01
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $91.15
MG Value based on 0% Growth $53.43
Market Implied Growth Rate 15.40%
Current Price $246.98
% of Intrinsic Value 102.05%

IPG Photonics Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.01 in 2014 to an estimated $6.29 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 15.4% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into IPG Photonics Corporation revealed the company was trading above its Graham Number of $83.87. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 39.29, which was below the industry average of 55.37, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $27.4.

IPG Photonics Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $27.40
Graham Number $83.87
PEmg 39.29
Current Ratio 9.54
PB Ratio 6.35
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $1,864,886,000
Total Current Liabilities $195,560,000
Long-Term Debt $44,466,000
Total Assets $2,498,007,000
Intangible Assets $104,989,000
Total Liabilities $352,638,000
Shares Outstanding (Diluted Average) 55,182,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.29
Dec2017 $6.36
Dec2016 $4.85
Dec2015 $4.53
Dec2014 $3.79
Dec2013 $2.97
Dec2012 $2.81
Dec2011 $2.41
Dec2010 $1.13
Dec2009 $0.12
Dec2008 $0.79
Dec2007 $0.65
Dec2006 $0.26
Dec2005 $0.16
Dec2004 $0.01
Dec2003 -$0.93
Dec2002 -$2.13
Dec2001 -$2.17

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.29
Dec2017 $5.02
Dec2016 $4.17
Dec2015 $3.65
Dec2014 $3.01
Dec2013 $2.38
Dec2012 $1.87
Dec2011 $1.28
Dec2010 $0.67
Dec2009 $0.43
Dec2008 $0.51
Dec2007 $0.26
Dec2006 -$0.13
Dec2005 -$0.56
Dec2004 -$0.96
Dec2003 -$1.31
Dec2002 -$1.29

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Stocks for Value Investors with a High Beta – January 2017
IPG Photonics Corp Valuation – Initial Coverage $IPGP

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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