IPG Photonics Corporation IPGP is slated to report second-quarter 2020 results on Aug 4.

For the second quarter, IPG Photonics expects sales in the range of $260-$290 million. The Zacks Consensus Estimate for revenues is currently pegged at $274.6 million, indicating a decline of 24.5% from the year-ago quarter.

Management projected earnings between 40 and 70 cents per share. The Zacks Consensus Estimate for earnings stands at 58 cents per share, suggesting a decline of 59.2% from the year-ago reported figure. Notably, the estimates improved 1.8% in the past 30 days.

Factors to Note

Sluggishness in demand for lower power pulsed lasers for marking applications is likely to have weighed on IPG Photonics’ second-quarter performance.

Although management noted rebound in China in the latter half of March and April, soft demand environment across Western Europe and North America owing to macroeconomic headwinds induced by coronavirus crisis might have dampened the second-quarter performance.
 

Particularly, weak demand across additive manufacturing applications has been leading to decline in average prices, which may have weighed on the second-quarter profitability.

Nevertheless, IPG Photonics’ efforts to expand into new end-markets like advanced applications (3D Printing and micro-materials processing), defense, communications and medical are likely to have contributed to the to-be-reported quarter’s performance.

In fact, development of new medical applications utilizing fiber lasers for urological and dental procedures may have aided adoption of laser-based medical solutions. This, in turn, might have driven the second-quarter performance.

In the first quarter, IPG Photonics witnessed strong growth in medical laser business. Notably, sales of medical lasers hit $10 million, up more than 500% on a year-over-year basis. The company has been ramping up sales of thulium fiber lasers solution that are utilized in urology and other soft tissue applications. In fact, the company has already received Food and Drug Administration (or FDA) approval for the same. The momentum is likely to have continued in the second quarter driven by growth in medical device manufacturing and installed systems.

Although the company’s investments to extend the use of medical lasers for transformative new products including mid-infrared lasers for inspection, spectroscopy and sensing applications, and new medical treatments hold promise in the longer haul, it might have impeded the the second-quarter performance.

Moreover, strength in advanced applications, with robust demand for semiconductor and scientific applications, may have contributed to the second-quarter performance. Markedly, in the first quarter, advanced applications revenues more than doubled year over year.

Improving mix of ultra-high power single mode lasers for aerospace and defense applications is likely to have favored the to-be-reported quarter’s performance.

In the first quarter, the company unveiled support for bi-directional, single fiber transmission modules to simplify optical networking. Further, the company mentioned about the extension of temperature operations in its Hytham line of coherent transceiver modules branded Menara.

Incremental adoption of the latest modules amid the increasing need of enhancing networking infrastructure in the wake of coronavirus-led spike in Internet use may get reflected in the second-quarter results.

Additionally, orders for 6 kilowatt and 10 kilowatt single-mode lasers, and high-power CW lasers might have benefited the performance in the quarter to be reported.

However, expenses pertaining to reduce costs to deal with coronavirus crisis-hit macroeconomic scenario and aggressive price competition in China are likely to have limited margin expansion in the second quarter.

Further, coronavirus crisis-led sluggish demand for industrial automation equipment across Europe and North America may have negatively impacted the performance in the to-be-reported quarter.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for IPG Photonics this time around. According to the Zacks model, a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

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

Stocks to Consider

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

Fastly, Inc. FSLY has an Earnings ESP of +27.27% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Synaptics Incorporated SYNA has an Earnings ESP of +10.60% and a Zacks Rank of 2.

Microchip Technology Incorporated MCHP has an Earnings ESP of +3.09% and a Zacks Rank of 2.

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