Key Takeaways
- Coherent stock rose 6% and Lumentum rose 8% after StoneX initiated coverage of both with Buy ratings and price targets of $425 and $1,200.
- Coherent’s selloff hit its valuation, and analysts kept raising its earnings estimates the whole time.
- StoneX’s $425 target is about 45x Coherent’s fiscal 2027 earnings estimate, well above the stock’s five-year average multiple of 24x.
- Coherent reports results on Nov. 4, and its cash flow matters as much as its sales.
Coherent (COHR) stock is up [6%] today and Lumentum (LITE) is up 8% after StoneX initiated coverage of both with Buy ratings before the open this morning.
StoneX’s $425 target on Coherent is 103% above Friday’s close. The firm says Coherent’s move to six-inch indium phosphide (InP) laser production underpins its earnings case. Its $1,200 Lumentum target is 59% above that stock’s Friday close, and StoneX says Lumentum holds “critical scarcity points” in high-speed InP lasers and cloud transceivers.
That’s welcome relief for Coherent, which dropped 19% in a week on worries about AI funding and its cash burn.
Estimates kept climbing
Six-inch wafers are the core of the bull case. Management says each one yields more than 4x the chips of a three-inch wafer at less than half the cost. It also expected to double its InP output capacity by the end of September, then more than double it again by the end of 2027.
Analysts expect that ramp to show up in earnings. They see normalized EPS climbing from $5.61 in fiscal 2026 to $9.39 in fiscal 2027 and $13.92 in fiscal 2028 (Coherent’s years end in June).
And that fiscal 2027 estimate is up from $8.17 at the end of June.
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Does $425 add up?
So the selloff came from the multiple. Coherent traded at 22x forward earnings at Friday’s close. That’s just under its five-year average of 24x and far below the 57x it hit in June.
StoneX’s $425 works out to about 45x the fiscal 2027 estimate, above even the 39x Coherent has averaged over the past year. At its five-year average multiple, $425 would take EPS of about $18. That’s close to the $18.87 analysts expect for fiscal 2029.
StoneX has company, though: the 24 analysts’ targets average $395.
Cash is the catch
Coherent turned $1.1 billion of non-GAAP net income into just $80 million of operating cash flow in fiscal 2026. It built inventory to $2.6 billion and spent $1.1 billion on capital expenditures. Analysts still expect negative free cash flow of $704 million in fiscal 2027.
My take: Coherent looks reasonably priced at 22x with estimates still rising. But $425 pays for earnings nearly three years out, and I’d want to see the cash turn before betting on it.
The first test comes soon. Coherent reports fiscal first-quarter results after the close on Nov. 4, with guidance of $2.2 billion to $2.4 billion in revenue. Operating cash flow and inventory matter as much as sales.
So what is Coherent stock actually worth?
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Disclaimer:
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