On Monday, BofA Securities took a positive stance on shares of Coherent Inc. (NYSE:COHR), elevating the stock from a Neutral to a Buy rating and increasing the price target to $75 from the previous $65.
The revised price objective is based on a 22 times calendar year 2025 price-to-earnings (PE) ratio, up from the prior 19 times but still consistent with the company's peers. The optimism from BofA Securities stems from several factors that indicate a promising outlook for Coherent.
The firm anticipates Coherent's per-share earnings could double to $4 by the fiscal year 2026, driven by a growth rate that is expected to reaccelerate to over 13% compound annual growth rate (CAGR). This growth is largely attributed to the burgeoning market for AI optical transceivers, which are becoming increasingly in demand.
Moreover, the new CEO of Coherent, Jim Anderson, who took the helm in June 2024, is expected to spearhead operational improvements. One of the key areas of focus is the expansion of gross margins (GM), which are projected to rise from the current 36% to over 40%. This improvement in operational efficiency is a significant factor in the analyst's upgraded outlook.
Another aspect contributing to the positive assessment is the anticipated deleveraging of Coherent's balance sheet. The expectation is that the company will reduce its debt-to-earnings ratio to less than double from a level of over triple currently. This financial restructuring is seen as a step towards a more stable financial position for Coherent.
However, BofA Securities also notes potential risks that could impact Coherent's performance. These include the variable pace of AI technology deployments, inconsistent expansion of gross margins, a slower recovery in the legacy telecommunications and industrial sectors, and the burden of a high debt load. Despite these challenges, the firm's overall perspective on Coherent remains bullish, as reflected in the upgraded rating and price target.
In other recent news, Coherent Corp. reported a strong third-quarter performance for fiscal year 2024, with a 7% sequential increase in revenue and a nearly 50% increase in non-GAAP EPS. This development follows the company's leadership restructuring which led to the departure of President Walter R. Bashaw II. Despite this change, JPMorgan (NYSE:JPM) maintains its Overweight rating for Coherent, expressing optimism about the company's future under the new CEO, Jim Anderson.
Coherent Corp. has also been making strides in its product developments. The company recently completed its 100th polished mirror segment for the Thirty Meter Telescope (TMT) project, an achievement that underscores its technical proficiency in the optics industry.
Moreover, Coherent introduced a new laser power sensor, the PM10K+, which accelerates power output measurements by up to 500%. The company also unveiled a novel optical fiber for high-power lasers, a first in the market for such technology. These recent developments indicate a continued focus on innovation and growth at Coherent Corp.
InvestingPro Insights
Following the upgrade from BofA Securities, Coherent Inc. (NYSE:COHR) continues to be a point of interest for investors. According to InvestingPro data, Coherent has a market capitalization of $9.66 billion and is trading at a P/E ratio of 56.98, reflecting a premium compared to the industry average. However, it's worth noting that analysts predict a sales decline in the current year, which aligns with the recent revenue growth data showing a decrease of 5.03% over the last twelve months as of Q3 2024.
Despite the anticipated sales decline, Coherent has demonstrated a strong return over the last week, with a 12.6% price total return, and an impressive 40.19% return over the past year. These figures suggest a level of market confidence in the company's long-term prospects. Additionally, Coherent's stock has experienced significant volatility, with a 19.21% decrease in the last month, yet an overall 17.97% increase over the last three months.
InvestingPro Tips highlight that while Coherent has not been profitable over the last twelve months, analysts are optimistic about the company turning a profit this year. Furthermore, the company's liquid assets exceed its short-term obligations, providing a cushion for potential financial headwinds. For those considering an investment in Coherent, there are over 11 additional InvestingPro Tips available, offering deeper insights into the company's financial health and market position (https://www.investing.com/pro/COHR).
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