IPG Photonics Corp.

IPGP:NMS February 04, 2011

Recommendation Summary Business Summary IT & Technology

Overall Recommendation: Strong Buy IPG Photonics is a developer and manufacturer of a line of fiber lasers for various applications in a range
of markets. Co.'s lines of low, mid and high-power lasers and amplifiers are used in materials processing,
Earnings Momentum: Strong Acceleration
as well as in communications and medical applications. Co. sells its products globally to original equipment
Analysts Forecasts: Very Positive manufacturers, system integrators and end users. Co. markets its products internationally primarily
Valuation: Overvalued through its direct sales force and also through agreements with independent sales representatives and
Price Momentum: Very Positive distributors. As of Dec 31 2007, Co. had sales offices in the U.S., Germany, Italy, the U.K., Japan, China,
Adjusted Beta: 1.1 South Korea, India and Russia.
IPGP PEERS
COMPANY Analysis Summary
CIRRUS LOGIC Hold The Ford Equity Research rating system is the product of more than thirty years of analysis of the factors
DIODES Hold that influence common stock performance. The foundation of the ratings is built on three basic
FORMFACTOR Sell
IXYS CORP Hold characteristics: positive earnings changes, relative valuation compared to other companies, and price
TTM TECHNOLOGIES Strong Buy momentum. While identifying companies with these factors individually results in above average returns,
the effect of combining them usually produces superior performance.

Price Performance
Price (US $)
Price (9/8/10): $22.09 50
Dividend Yield: 0.0%

High

Monthly Price P/S at 6.63 x Trailing Sales

Close

Low 20

Ford Valuation Bands

Valuation bands based on the
highest and lowest Price/Sales
ratio in the past five years 10
applied to the trailing 12 month
sales.
Trailing 10 Months
Average Price P/S at 1.65 x Trailing Sales
5
1.5 2006
Trailing Three 2007
Month Average Volume (millions) 2008 2009 2010 2011
Volume 1.0
0.5
0.0
2006 2007 2008 2009 2010 2011

Earnings Momentum

Deceleration Neutral Acceleration

Ford's earnings momentum measures the acceleration or deceleration in trailing 12 month operating earnings per share growth. The upward curvature of the
plotted points in the graph below indicates that while Co.'s earnings have increased from $0.12 to an estimated $0.91 over the past 5 quarters, they have shown
strong acceleration in quarterly growth rates when adjusted for the volatility of earnings. This indicates a good improvement in future earnings growth may occur.
Over thirty years of research have shown that the major catalyst of price performance is the change in the growth of earnings per share. Ford measures
earnings momentum and analysts' forecast changes to get an early indication of changing earnings patterns.
Ford Earnings Momentum
Recent Developments
1.2 TTM Operating EPS in US $
For the quarter ended Sep 30 2010, net income increased 487.6% to US$13.3 million from US$2.3 million
in the year-earlier quarter. Revenues were US$79.8 million, up 74.2% from US$45.8 million the year 0.8
before. Operating income was US$20.5 million versus US$3.6 million in the prior-year quarter, an
increase of 463.2%. Direct operating expenses rose 37.1% to US$39.9 million from US$29.1 million in the
0.4
comparable period the year before. Indirect operating expenses increased 48.3% to US$19.4 million from
US$13.1 million in the equivalent prior-year period.
0.0
12/09 03/10 06/10 09/10 12/10

Analyst Forecast

Very Negative Neutral Very Positive

Recent analyst earnings forecasts for Co. have increased which indicates a rise in expected earnings growth. Relative to changes in earnings forecasts for
other companies, Co. compares favorably. In addition, the company has reported earnings that were higher than those predicted in earlier estimates which
may be a positive for future earnings growth. Changes in analysts' estimates and actual reported earnings compared to forecasted estimates provide
additional insight into earnings momentum. These measures combine with Ford's earnings momentum to produce better results than each independently.
Prospects
Co.'s top-line results are benefiting from higher sales of its fiber lasers used for materials processing applications due to increased sales of pulsed lasers and
medium powered lasers, combined with robust sales to North American, European and Asian markets. Separately, on Jan 23 2009, Co. announced that it
has developed two new families of fiber lasers in the green spectrum range, the new pulsed 10 watt green fiber laser and continuous wave 15 watt green
fiber laser, which should allow Co. to enter new markets and applications. Accordingly, Co. is ramping up production of the new green lasers, and volume
production units are expected to be available in the second quarter of 2009.

Copyright ©2006 Ford Equity Research www.fordequity.com

 IPG Photonics Corp. IPGP:NMS February 04, 2011

Valuation Analysis
Operating Earnings Yield Distribution (%) Industry Group Valuations
900
Number of Companies
Relative Valuation Price Earn.
9/8/10 Yld.(%)
Over Neutral Under IPG PHOTONICS $22.09 2.5
600 IPGP CIRRUS LOGIC $24.81 5.0
➔

DIODES $25.78 6.6

300 Industry Valuation FORMFACTOR $9.40 -21.8
IXYS CORP $11.44 8.2
0 Over Neutral Under TTM TECHNOLOGIES $17.21 6.9
<-5 -5 0 2 3 4 5 6 7 8 9 10 15 20+
Overvalued Undervalued

Co.'s operating earnings yield of 2.5% ranks above 37% of the other companies in the Ford universe of stocks, indicating that it is overvalued.
Ford measures the relative valuation of each company against all other companies in our research universe. Operating earnings yield, an
earnings-to-price ratio based on the last 3 quarters of operating earnings and the current quarter's estimate, has proven to be the most reliable relative
valuation measure. A stock may stay undervalued or overvalued for a long period of time. For this reason it is important to combine the factor with
short-term catalysts such as earnings momentum or price momentum that may unlock potential valuation adjustments.
Price Momentum

Price Momentum Detail Overall Price Momentum Intermediate Term Impact

∗ 1-year gain of 76.9%: Positive
∗ 1-quarter gain of 43.8%: Negative Below Average Above Below Average Above
∗ 1-month gain of 3.0%: Negative
Long Term Impact Short Term Impact
∗ Overall rating: Very Positive
Below Average Above Below Average Above

Co.'s stock price is up 76.9% in the last 12 months, up 43.8% in the past quarter and up 3.0% in the past month. This historical performance should
lead to above average price performance in the next one to three months. Another important measure, especially in regard to intermediate and short
term performance is the historical price action of a company's stock. Long term historical performance is a good indicator of future price performance,
but much more importantly, large price movements over the intermediate and short term tend to reverse themselves. Ford's price momentum model
integrates historical long and short term price changes creating ratings that are highest for stocks with strong twelve month price performance that
have a price consolidation in the past quarter and especially the past month.

Quality Rating

IPGP PEERS Co. is considered average quality based on its size, low financial leverage and average earnings
COMPANY volatility. Average quality companies on average exhibit an average degree of price volatility.
IPG PHOTONICS B-
CIRRUS LOGIC C+ While not part of the overall recommendation, Ford's quality rating has been a good indicator of the
DIODES B- potential price volatility of a company. Ford measures quality based on company size, financial
FORMFACTOR C+ leverage and the volatility of earnings. Quality may not have a direct relationship to performance,
IXYS CORP C+ but it does have a close relationship to the dispersion of returns among individual stocks. Attractive,
TTM TECHNOLOGIES B- high quality companies can have less downside volatility in weak markets and often produce strong
Quality Rating returns during complete market cycles.

Additional information, such as corporate actions, industry and economic factors, and general news
Below Average Above
may not have been reflected in earnings or expectations yet, and may have an impact that is not
considered in the Ford Equity Research rating.

Fiscal Year Fundamentals

2003/12 2004/12 2005/12 2006/12 2007/12 Last 12 Months
Total Sales (millions) $34 $61 $96 $143 $189 $212
Earnings Per Share $-1.40 $-0.01 $0.16 $0.26 $0.65 $0.74
Return On Assets 0.00% 0.00% 6.57% 16.80% 12.06% 12.37%
Average Yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net Profit on Sales -83.61% 3.31% 7.71% 20.41% 15.84% 15.86%
Cash Flow/Share $0.00 $0.24 $0.52 $0.69 $0.25 $0.55
Book Value/Share $0.00 $1.73 $1.87 $3.70 $4.55 $5.06
Return on Equity 0.00% 0.00% 0.00% 52.16% 16.67% 16.82%
Debt to Equity 0.00% 0.00% 0.00% 18.96% 9.99% 8.30%

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from a quantitative approach that uses historical data to produce a stock ranking system. Stocks are assigned to one of five ratings based on relative scores. The ratings are Strong Buy, Buy, Hold, Sell, and Strong Sell. While stocks rated
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