On Tuesday, Rosenblatt Securities adjusted its stance on Coherent Inc. (NYSE: NYSE:COHR), downgrading the stock from Buy to Neutral while raising the price target to $105 from a previous target. The decision comes despite the company's significant year-to-date stock performance, which has seen an increase of 126% due to its leading position in Datacom transceivers for AI, the impact of a strong new CEO, and the potential for improvement in its Telecom and Industrial businesses.
Coherent is recognized for its leadership in VCSEL-based modules, which have been integral to its success. However, the firm anticipates that by FY25, EML-based transceivers will likely begin to outperform VCSEL-based modules as they advance in ramping up to 200G per lane for the new 800G and 1.6T products. This shift could lead to market share losses for Coherent, as the company is currently lagging in the competitive EML space.
The downgrade also reflects a strategic caution regarding Coherent's future earnings potential. Management's intention to keep FY25 forecasts conservative is influenced by potential divestments aimed at reversing parts of the Coherent Industrial Lasers acquisition and increasing the company's focus on Networking. This conservative approach is seen as a possible dampener on the stock's near-term growth prospects, especially now that Coherent's shares are trading above 23 times the consensus FY26 earnings.
In contrast, Rosenblatt expresses a preference for Lumentum (LITE), which is viewed as both a long-term winner and a near-term share gainer due to its leadership in EML technology. The firm suggests that Lumentum may be better positioned to capitalize on the upcoming market shift.
In raising Coherent's price target to $105, Rosenblatt justifies the increase by applying a 25 times multiple on its FY26 EPS forecast. The firm acknowledges Coherent's valuation above 20 times earnings multiple, earned through its AI transceiver leadership. Nonetheless, the analyst predicts that Coherent's stock may experience limited movement in FY25 without the earnings upside necessary to drive further near-term multiple expansion.
In other recent news, Coherent Corp. has witnessed a series of significant developments. The company's fourth-quarter revenue experienced a 9.1% year-over-year increase, reaching $1.31 billion, with adjusted earnings per share at $0.61, surpassing consensus forecasts. Coherent's leadership saw changes with the appointment of Sherri Luther as CFO and the promotion of CEO James R. Anderson to President.
Furthermore, Coherent Corp. sold its Newton Aycliffe manufacturing facility in the UK, a strategic move to streamline operations. The company also unveiled advanced transceiver modules at the European Conference on Optical Communication. Analysts from B. Riley and Needham have adjusted their stance on the company, with B. Riley downgrading the stock to a Neutral rating and Needham maintaining a Buy rating, increasing their price target to $120.
Coherent's AI transceiver business has been highlighted as a significant contributor to its growth prospects. The company's first-quarter revenue for fiscal 2025 is anticipated to range from $1.27 billion to $1.35 billion, with adjusted earnings per share projected to be between $0.53 and $0.69.
InvestingPro Insights
Coherent's recent market performance aligns with the article's discussion of its strong year-to-date stock performance. InvestingPro data shows a remarkable 217.45% one-year price total return, significantly outpacing the market. This impressive return supports the article's mention of Coherent's 126% year-to-date increase, highlighting the company's recent success in the AI-driven Datacom transceiver market.
However, the company's financial health presents a mixed picture. While Coherent boasts a substantial market capitalization of $15.2 billion, its P/E ratio of 56.98 suggests a high valuation relative to earnings. This aligns with Rosenblatt's concern about the stock trading above 23 times consensus FY26 earnings.
InvestingPro Tips indicate that Coherent's stock price movements are quite volatile, which could be relevant to investors considering the potential market shift towards EML-based transceivers mentioned in the article. Additionally, the tip that net income is expected to grow this year contrasts with the article's cautious outlook on near-term earnings potential.
For readers seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Coherent, providing a deeper understanding of the company's financial position and market dynamics.
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