UPDATE: Morgan Stanley Downgrades II-VI, Inc. (IIVI) to Equalweight
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Morgan Stanley analyst Meta Marshall downgraded II-VI, Inc. (NASDAQ: IIVI) from Overweight to Equalweight with a price target of $59.00 (from $75.00).
The analyst comments "We move to EW IIVI given our view that valuation discount unlikely to close in near term given increasing smartphone exposure against weakening data points, leverage / floating rate debts as well as more general macro environment / supply chain concerns. This will cause the name in the near term to trade below traditional averages. While we do think there is growth opportunity to participate in a more diverse company ahead of key demand drivers in telco, datacomm and longer term opportunities in SiC, we would like to get past negative data points and dilution risk before stepping back in. Our new PT for IIVI post the inclusion of COHR into our model is $59 (from $75), representing ~15.5x CY23e EPS (from 19x) on a lowered earnings estimate of ~$3.8 (from $4). This is less than one standard deviation below traditional trading ranges on account of near term headwinds. It also represents ~10x CY23e EBITDA. We believe multiple will improve as leverage improves, particularly given COHR's traditional trading range. Our base case accounts for strength in demand environment in telco, some turnover in datacomm demand, COHR integrations tracking on-time, but some near term weakness in OLED. Our bull case valuation is $87 (from $100) and is 22x (remaining the same as previously) our bull case EPS estimate of ~$4 (from $4.5), which we believe could be achieved with accelerated 3D sensing share gains and full realization of COHR synergies ahead of plan. Our bear case valuation of $33 (from $45) is now 11x (from 15x) our bear case EPS of $3 (unchanged), a scenario which contemplates a prolonged recession that impacts growth as well as synergy realization (2 standard deviations below). Risks to our price target include worsening macro conditions that enhance leverage and floating debt risk, challenges with the Coherent integration that push out synergy realization and extended softer consumer / smartphone demand challenging growth."
Shares of II-VI, Inc. closed at $52.54 yesterday.
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