COHR ==> The Minneapolis Winner

[mrmarket]

($$$MR. MARKET$$$ is a proprietary investor and does not provide individual financial advice. The stocks mentioned on this forum do not represent individual buy or sell recommendations and should not be viewed as such. Individual investors should consider speaking with a professional investment adviser before making any investment decisions.)

When you’re having a conversation, it’s important to be coherent. Frankly, the only difference between a monkey and a man is his brain. Remove the brain, and this is what you get:



Today I bought stock in Coherent, Inc. (COHR) at 259.77. I will sell it in 4 to 6 weeks at 299.11. Here’s why I like Coherent:

This chart is a little bumpy but it looks like I may have filled a gap. I like doing that from time to time because when it goes up – it will go up faster.



This stock is up 60% in the last 12 months. This is even more impressive when you see that the forward PE is only 13.81, which make it seem pretty cheap relative to peers. IPGP, my last laser winner, is trading at a PE of 36, while COHR’s PE is only 30. So, COHR has a 20% valuation kick to the upside! The market is discounting COHR too low relative to its peer.

Coherent, Inc. provides lasers and laser-based technology in a range of scientific, commercial, and industrial applications worldwide. It operates through two segments, Specialty Lasers and Systems, and Commercial Lasers and Components. The company designs, manufactures, services, and markets lasers, laser tools, precision optics, and related accessories. Its products are used in markets, such as microelectronics, materials processing, original equipment manufacturer components and instrumentation, and scientific research and government programs. The company markets its products through a direct sales force in the United States, as well as through direct sales personnel and independent representatives internationally. Coherent Inc. was founded in 1966 and is headquartered in Santa Clara, California.

Ok..here we go again. Just like my last winner, IPG Photonics Corporation, I am jiggy with lasers. Earnings are going to come out next week, so I’m either going to hit this one over the fence really fast or I have to be patient and ride the next market wave. Of course, I can minimize my risk by waiting to see the actual numbers and the market's reaction. Hey…I like to gamble….bet bet bet bet bet!!

The company reported 125% earnings growth in its most recent report, while sales growth came in at 97%. The economy has been rocking. I don’t expect a derailment. ANAL-ysts expect earnings-per-share growth of 36% for the quarter, and 22% growth for the full year.

Last quarter, Coherent earned $3.72 a share, up 125% year over year, on sales of $490.3 million, up 97%, in its fiscal fourth quarter ended Sept. 30. The cowardly ANAL-ysts expected $3.45 and $477.5 million. Coherent blew them away.

Their products are used in the manufacturing of organic light-emitting diodes, or OLED displays and high-brightness LEDs. The global OLED market was valued at USD 16.58 billion in 2016 and is expected to reach USD 48.81 billion by 2023, at a CAGR of 15.2% between 2017 and 2023. The key factors driving the growth of the market include the rapid adoption of OLED displays in smartphones and the growing investments in technology and manufacturing facilities. The growth of the market is further driven by positive user experience pertaining to OLED devices (smartphones), advancements in technology and benefits offered by the technology, and government support with regard to OLED lighting research. However, the market growth is restrained by the high growth of the market for micro-LED and direct-view LED display technologies, and low market acceptance of OLED lighting fixtures.

Coherent is a top supplier of lasers, laser-based technologies and laser-based systems for scientific, commercial and industrial applications. Coherent is benefiting from the growth in production of OLED displays. A rising tide lifts all boats, especially for the guy who makes the boats. Coherent holds superior products within this growing OLED display market.

For all that they do, lasers will continue to be instrumental in existing and emerging markets worldwide that will grow laser sales to nearly $12 billion in 2018— increasing at a clip of around 10% per year. Coherent also stands to benefit from an improving semiconductor fabrication outlook. Coherent strives to develop innovative and proprietary products and solutions that are based on its core expertise in lasers and optical technologies.

Laser technology has infiltrated our lives already and we don’t even know it. Did you drive to work today? Are you reading this stock write up on a flat panel monitor? Laser laser. Does your husband have a hairy back? Laser Laser Laser.

COHR has already shown their stuff with strong growth in revenue, outstanding margins and consistent reports that bookings have not subsided. Demand in materials process and applications also remain robust. They have been going bonkers trying to increase capacity to keep up with demand. The growing photonics market is expected to grow at a CAGR of 8% between 2018 and 2021.

In 2016, Coherent aquired Rofin-Sinar Technologies Inc. Rofin was one of the world’s leading developers and manufacturers of high performance industrial laser sources and laser based solutions and components. This is like merging the football team and the track team…incredible growth synergy…it’s already working great!

COHR stock has posted more than 340% returns over the last five years. This strong performance is a reflection of the fact that the company is well prepared to ride this next growth wave in laser-based technologies. It’s a Kahuna wave that is being surfed and surfed and surfed. Their customers, the semiconductor and device manufacturers will keep looking for ways to manufacture smaller and more powerful devices at lower cost and all of this will require laser tech. Coherent lasers offer solutions for a bazillion applications on any material to its customers. This not only sets it up for continued strong demand but also the breadth of demand diversifies this company’s risks.

ANAL-ysts project that Revenues will be $2.0 billion in 2018 yielding earnings of $15.38 per share. $$$MR. MARKET$$$ believes that sales will come in at $2.4 billion which will generate earnings of $18.11 per share.

If you take $18.11 and multiply it by its PE ratio of 30, you get a share price of $18.11 x 30 = $543.30. Oh yeah…that’s a rock and roll laser show.
Here’s what the boss. John Ambroseo, had to say:

“We are very well positioned for another record-setting year in fiscal 2018. We have a plethora of new products in the pipeline and look forward to expanding our presence in the commercial markets. We've done a very good job of driving profitability and cash generation. We expanded on both in the current fiscal year and plan to use the cash to invest in future growth and retire the debt… So certainly, the consumer electronics business globally, but especially in China, has obviously been very, very active. A lot of these packaging lasers that I talked about during my prepared remarks and then responded to an earlier question about, much of that went into China. And again, a number of projects that are currently being discussed with customers remains at a pretty high level. It feels like the overall market in China, not just the industrial piece of it, is running pretty hot right now.”

One thing that is red hot is this laser….and it’s going to be so hot, it will melt me a path right to the bank! I am HUGE!!!

$$$MR. MARKET$$$

[Louetta]

Good luck, Large Person. Once again you've got a pair on you like this [hefts two grapefruit].

[say33]

You mean a pair of neurons? I hope not.

As they say, if you can't stand the heat... don't put your balls inside the oven. I'm not going to shy away and leave the three of you (you and your pair) on your own against the powers that be, but, under the circumstances, I think a bit of cautious tactic is mandatory and buying at a discount price is out of the question, so I'm going to put a stop limit buy order at exactly your purchase price.

So, that's the deal: your price, not lower nor higher, or nothing and you're alone on this, Captain.

[tiedyed1]

Congratulations on a great write up and another Mr. Market future winner. I love the forward PE estimates and, while earnings this week will create further volatility, the market is bullish on COHR (just look at the call premiums).

This is a great follow up to IPGP and I am in with you this morning at $248.08. (Update : and added more this afternoon at 240.88!)

[jiesen]

Congratulations on a great write up and another Mr. Market future winner. I love the forward PE estimates and, while earnings this week will create further volatility, the market is bullish on COHR (just look at the call premiums).

This is a great follow up to IPGP and I am in with you this morning at $248.08. (Update : and added more this afternoon at 240.88!)

Yes, an awesome writeup, $$MM!!! I agree that this will be as HUGE of a pick as IPGP, and am also in at $248 and change today. (Should have held a few bucks back to scoop up some $240 shares, too, but oh well....)

[tiedyed1]

Q4 Sales of 477.6M
The market was hoping for a higher number after this past years acquisition.

This is all about technology that is NOT slowing up and meeting all company expectations:

"There has been a lot of turbulence in the display market over the last several weeks, raising investors' concerns about the timing and/or sustainability of the investment cycle. We conducted a channel check and the results indicated no current sign of customers seeking to delay or cancel deliveries of existing ELA systems. We also reviewed fab utilization rates and system installations and concluded that service revenues are in-line with our expectations. During the quarter, orders from semicap applications were strong for expansion of memory capacity. We received our first volume order for high-power fiber lasers from one of the largest Chinese machine tool manufacturers. We also saw a solid uptick in medical device manufacturing workstations," stated John Ambroseo, Coherent's President and Chief Executive Officer. "We were pleased with our financial results for the first quarter of fiscal 2018, which enabled another EUR 75 million voluntary debt payment. We have now repaid approximately one third of the debt used to finance the Rofin transaction. In addition, as a result of our strong cash generation, our Board has approved a share repurchase authorization of up to $100 million," he added.


I am not worried about the after hours haircut going on and added more at $229/sh.

(Disclosure: Yesterday I had also written covered calls against my shares (Feb 250's and Feb 260's) which has provided me some comfort now in further lowering my cost basis. )

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Update

February 08, 2018 08:49 ET (13:49 GMT)

DJ Coherent Price Target Cut to $325.00/Share From $332.00 by Barclays

Ratings actions from Benzinga: http://www.benzinga.com/stock/COHR/ratings

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In my opinion the sell off today is an overreaction and added more at $212.
Hanging tight and long!

[say33]

Good luck with this but, as a general rule, averaging down again and again, options hedging..., all these martingale-like position management strategies have the same problem: to take finally a little profit you need to have a lot of unproductive, idle spare money, and that's why they are, in principle and on principle, wrong, imho.

[mrmarket]

Good luck with this but, as a general rule, averaging down again and again, options hedging..., all these martingale-like position management strategies have the same problem: to take finally a little profit you need to have a lot of unproductive, idle spare money, and that's why they are, in principle and on principle, wrong, imho.

I have no idea about what you just said. I still like the company's earnings outlook.

[tiedyed1]

Good luck with this but, as a general rule, averaging down again and again, options hedging..., all these martingale-like position management strategies have the same problem: to take finally a little profit you need to have a lot of unproductive, idle spare money, and that's why they are, in principle and on principle, wrong, imho.

That premise is valid if I was tying up dead money for a long term. However, this strategy for me has worked extremely well throughout my lifetime. (I am 57 and also looking at covered calls on many more positions these days due to overall market rise last year and this is me taking a more conservative approach.) I write the covered calls only when I see decent premiums and the options premiums going into earnings were large ones (i.e. Feb 250's I was paid >$15/sh) and I can buy them back today for nothing this morning if I choose to. Yes, if the stock popped and I lost the shares at $250 next week I still have my $15 and that would have been a nice % gain over 2 weeks. In some cases the covered call premiums can bring cost basis down to zero over time, while having a bit of insurance coverage during volatile times. It really depends on the stock and having a sizable premium. (LRCX was a great example over the last few months too.)

I do not intend to keep this position for years and averaging down with a company I like the fundamentals in. I add to positions this way regularly. Today I see what I hope are overreactions within a volatile market. Averaging down is different than desperately chasing with empty hopes; and should be considered when one sees opportunity.

[mrmarket]

At the end of the day, it's all about earnings...earnings and earnings.