Benzinga | Dec 15, 2021 08:01AM EST

Read Why Morgan Stanley Sees 26% Upside In II-VI

Morgan Stanley analyst Meta Marshall upgraded II-VI, Inc (NASDAQ:IIVI) from Equal-weight to Overweight with a price target of $82, up from $80, implying 26.4% upside.

* Marshall believes that the pullback in valuation over the last year (down ~12% YTD and ~26% since initial COHR announcement) and current multiple (~17-18x CY23 P/E) is too pessimistic around Coherent Inc (NASDAQ: COHR) transaction risks and recent 3D sensing results.

* Marshall believes it misses the earnings potential of the core business, particularly in the midst of a datacom upgrade cycle.

* Investor concerns around the transaction have set the name back ~amidnitial bid announcement, primarily around integration concern, the price paid, and where COHR is in their cycle.

* Marshall continues to think the acquisition is a positive for IIVI gen the diversification away from datacom, and feel less cautious around integration given confidence in the management team.

* Overall, IIVI is nearing the end of de-risking in the name given transaction appears to be closer to closing, and the achievement of COHR synergies should be a catalyst to re-rating in the stock.

* Marshall also sees potential tailwinds in SiC business, regaining 3D sensing share, and an essentially healthy telco and datacom market (as Ciena Corp (NYSE: CIEN) & Arista Networks Inc (NYSE:ANET) results point to) leave plenty of opportunity for upside in the name.

* Risks to Marshall's call would be continued 3D sensing share losses or headwinds to COHR results, pushing out synergy targets.

* Price Action: IIVI shares traded higher by 2.2% at $66.29 in the premarket session on the last check Wednesday.