Expanding II-VI sees 10-15% growth next year

16 Jun 2011

The infrared optics company remains optimistic about future business, despite worries over US military spending.

II-VI, the optics company with a number of subsidiaries serving various photonics markets, still expects strong revenue and earnings growth in fiscal 2012 - despite the likelihood of an overall drop in US military spending.

For its current fiscal year, which ends June 30, II-VI has forecast revenues of just over $500 million, a figure that will represent annual sales growth of close to 45%. The strong performance largely reflects rapidly growing sales of infrared optics.

According to CEO Francis Kramer, that rate of growth will be tempered in 2012, but revenues will still reach between $565 million and $580 million. “Our initial guidance for fiscal year 2012 reflects growth in infrared optics and other industrial markets as well as a record backlog of orders slated for delivery in the year ahead,” he said.

“After considering current order patterns in telecommunication markets, we expect modest growth in our near-infrared optics business. And we have tempered our military business expectations for the next fiscal year due to the current lack of visibility in US military orders.”

Key spending areas
Despite the anticipated weakness in overall defense spending, analyst Mark Douglass at Longbow Research believes that II-VI will still benefit from the growing focus of the US military on the key area of intelligence, surveillance and reconnaissance (ISR) – for which optical and electro-optic components are critical.

Within the past week, II-VI has also agreed a supply deal with the materials giant GT Solar International. GT’s Crystal Systems subsidiary will provide $3.75 million worth of large sapphire blanks to the II-VI company Exotic Electro-Optics (EEO) under a US defense program. EEO will use the 13-inch blanks to fabricate high-performance sapphire windows for a multi-spectral aerospace application.

With a strong cash balance, II-VI is already in a good position to grow via acquisitions, and that will be aided by a new, five-year $50 million credit facility agreed with PNC Bank, National Association. The company also has the option to borrow a further $30 million under the facility if desired.

II-VI is also planning a two-for-one stock split on June 24. The stock is currently trading (June 16) at around $49 – down slightly after the issue of fiscal 2012 guidance - although Longbow’s Douglass recently increased his 12-month target price for the stock from $54 to $68.

The analyst sees significant upside on the company’s earnings through sustained revenue growth relating to industrial laser deployments, increased utilization of the installed laser base and growing military sales despite the wider slowdown in defense spending.