Laser Leader Looks Cheap
Samuel Ro, Forbes Growth Investor 03.07.08, 4:45 PM ET
Laser technology offers a non-contact, high-speed and low-cost alternative to traditional mechanical tools. Demand for laser technology has been robust, particularly in the emerging economies, but companies specializing in this area are relatively small and their names are not well known.
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Some players in lasers include Coherent (nasdaq: COHR - news - people ), IPG Photonics (nasdaq: IPGP - news - people ), GSI Group (nasdaq: GSIG - news - people ) and Excel Technology (nasdaq: XLTC - news - people ). Recently, the quantitative model employed by the Forbes Growth Investor newsletter identified a laser technology leader with broad geographic diversification as a highly desirable investment.
Rofin-Sinar (nasdaq: RSTI - news - people ) develops carbon dioxide (CO2), solid-state and diode lasers. It designs and manufactures laser systems for customers in the machine-tool (36% of fiscal 2007 sales), semiconductor and electronics (23%) and automotive (8%) industries. Other markets that rely on its lasers include medical devices, consumer goods, packaging, aerospace and defense, jewelry and research institutions. In fiscal 2007, 55% of revenues came from Europe, 23% from North America and 22% from Asia.
The macro segment generated 43% of fiscal 2007 sales. It makes CO2 lasers with up to 8 kilowatts of output, solid-state lasers with 350 watts to 4 kW of output, and diode lasers with 10 W to 3.6 kW of output. High-power lasers are used for cutting and welding metal. Lower-power lasers are used for soldering, surface treatment and welding plastics.
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The marking/micro business segment accounted for 48% of Rofin-Sinar's sales. Marking lasers produce just 2 to 120 watts of power. These low-power lasers mark integrated circuits, electronic components, smart cards, automobile labels and components and packaging products.
Micro lasers range from 1 W to 1 kW of power. They are used for fine cutting, spot welding and micro-structuring of medical and dental equipment, electronics and jewelry. Micro lasers are also included in perforating systems for easy-tear products, foils for food packaging and cigarette paper.
The remaining 9% of sales come out of the components segment, which provides power supplies, fiber and optics technologies and laser diodes. Rofin-Sinar recently augmented this segment with the December acquisition of Nufern, a maker of specialty fibers for military applications.
Revenues from Europe and Asia grew 31% and 11%, respectively, in fiscal 2007. These gains more than offset weakness in North America, which saw an 11% decline in sales. Fiscal first-quarter results revenues jumped 20.5% year-over-year to $134.7 million. Favorable foreign exchange produced half the gain.
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Macro revenues jumped 38.4%, to $61.2 million. Marking/micro revenues grew 10.1%, to $63.4 million, and components sales climbed 1.2%, to $10.1 million. The gross profit margin improved 250 basis points to 43.55% thanks to a more favorable product mix and improved productivity. The operating profit margin grew 233 basis points, to 18.51%. Net income jumped 47%, to $16.9 million, or 53 cents per share. Rofin-Sinar booked $157.9 million worth of orders during the quarter.
Because Rofin-Sinar depends on its customers' capital-expenditure activities, unexpected cutbacks would have a detrimental impact on its business. The company is particularly exposed to the machine tool, and semiconductor and electronics industries.
Nonetheless, Rofin-Sinar should enjoy continued growth as it capitalizes on the expanding Chinese economy. It is currently constructing laser-diode and laser-marker facilities in China, which should come on line later this year. It is also in negotiations to acquire a Chinese high-power laser manufacturer.
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While these developments ensure the company's long-term prospects, the short-term outlook is also favorable. Rofin-Sinar has a healthy backlog, a predictable stream of service and spare-parts revenues and is looking forward to incremental contributions from the Nufern acquisition.
Rofin-Sinar management expects revenue during the second quarter to grow 16% to 21%, or between $135 million and $140 million. For the full year, management looks for 13% to 15% revenue growth, to $540 million to $550 million.
This guidance takes into account continued weakness in North America. However, U.S. results may turn out to be better than expected thanks to the accelerated depreciation provision in the Economic Stimulus Act of 2008. Results could also surprise on the upside if the U.S. economy successfully avoids a prolonged recession.
Samuel Ro is an equity analyst with the Forbes Investors Advisory Institute, publisher of Forbes Growth Investor and Forbes Special Situation Survey. Click here for details on model portfolio holdings and recent buys and sells.
5100 Patrick Henry Drive
Santa Clara, CA 95054
United States - Map
Web Site: http://www.coherentinc.com
Industry: Scientific & Technical Instruments
Full Time Employees: 2,339
Coherent, Inc. provides photonics-based solutions for commercial and scientific research applications worldwide. It engages in the design, manufacture, and marketing of lasers, precision optics, and related accessories. The company's products are used in a range of applications, including microelectronics, materials processing, OEM components and instrumentation, scientific research and government programs, and graphic arts and display. It markets its products primarily through a direct sales force, as well as through independent representatives. The company was founded in 1966 and is headquartered in Santa Clara, California.
Coherent Inc.'s Corporate Governance Quotient (CGQ®) as of 6-Mar-08 is better than 93.5% of CGQ Universe companies and 76.2% of Technology Hardware & Equipment companies.
Dr. John Ambroseo Ph.D., 46
Chief Exec. Officer, Pres
Ms. Helene Simonet, 56
CFO, Principal Accounting Officer and Exec. VP
Mr. Luis Spinelli, 60
Chief Technology Officer and Exec. VP
Mr. Luis Spinelli, 60
Chief Technology Officer and Exec. VP
Mr. Ronald A. Victor, 63
Exec. VP of HR
% of Sh Held by All Insider and 5% Owners: 0%
% of Sh Held by Institutional & Mutual Fund Owners: 89%
% of Float Held by Institutional & Mutual Fund Owners: 89%
Number of Institutions Holding Shares: 137
Estimated Market Cap
883,524,752 as of Mar 7, 2008
31,543,190 as of Feb 1, 2008
Number of Share Holders of Record
1,372 as of Feb 6, 2008
American Stock Transfer & Trust Company,
59 Maiden Lane
New York, NY 10038
Formerly=Coherent Radiation to 2-77
Primary SIC — Industry Classification
3674 - Semiconductors and related devices
King Capital Investment Group