Friday File: Sad Lasers, Disappointing Hemp and too many Mutual Funds

A check-in on II-VI and Charlotte's Web, plus updates on WRTC, DIS, TTD, BOMN and TIPT... and a deeper dive into some of my other holdings

By Travis Johnson, Stock Gumshoe, November 15, 2019

Let’s start with the bad news… we got quarterly updates this week from Charlotte’s Web (CWEB.TO, CWBHF) and II-VI (IIVI), both stocks I’ve bought fairly recently (IIVI just a few weeks ago, CWEB a few months ago), and those are both in the red. Neither one hit a stop loss yet, but what did we learn this week about those companies?

II-VI (IIVI) completed its merger with Finisar just before the end of the quarter (that was the first quarter of their FY2020), so that added a little bit to revenues… but they came in short of analyst estimates, mostly because of weakness in their industrial business due to the trade war and slowing sales in China, and they also offered a huge guidance cut, which seems also to be primarily a reaction to declining volumes thanks to the trade war and some slowdown in the data center upgrade cycle. Here’s an excerpt of what one analyst, from Needham, said about the quarter (from Briefing.com):

II-VI target lowered to $40 at Needham — Messy Start To IIVI-Finisar Era; Still See Solid Upside For Shares (32.48)
Needham lowers their IIVI tgt to $40 from $46. Analyst James Ricchiuti said, “IIVI yesterday reported mixed FQ1 results and issued disappointing guidance for FQ2, the first full quarter following the Sept. 24th acquisition of Finisar. The weak outlook sent shares down 8% (vs. flat NASDAQ) and reflects a slower environment in IIVI’s industrial vertical, softness in the data-com portion of its communications business and technical issues that arose in the Finisar Sherman 3D sensing fab following qualification in Sept. Looking to FQ3, we believe IIVI will be in a position to pull some of the cost levers to drive better operating efficiencies. While we acknowledge the messy numbers early in the integration of Finisar, compounded by the challenging macro environment, we continue to believe the Finisar acquisition will create value for IIVI shareholders and that its benefits will begin to be evident in 1H’20. Maintain Buy.”

The real shock to investors was that the guidance for the current quarter (their second quarter) is for earnings per share of 20-50 cents — which is both a huge range and a big disappointment compared to the 64 cents that analysts had been anticipating. Revenue expectations also dropped, as you might imagine, with IIVI guiding for revenue of $590-630 million in the quarter while analysts were ...

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