Coherent stock: what next for this Lumentum rival ahead of earnings?

Coherent stock has done well, helped by the recent investment by Nvidia and the growing revenue trajectory. COHR has jumped by 260% in the last 12 months and 380% in the last five years. This growth has brought its market capitalization to over $64 billion, mirroring the performance of Lumentum, another top player in the optics industry.

Coherent is seeing strong growth as optics demand jumps

Coherent is a top company in the technology space. While it is not a popular brand like Nvidia and AMD, its solutions are equally important in the data center industry. 

It manufactures products like transceivers, optical modules, fiber lasers, DUV lasers, and fiber-optic components. As AI clusters become bigger, the amount of laser connectivity is growing, leading to more demand for its products.

Coherent counts the biggest clients like NVIDIA, Microsoft, Amazon, Google, and Meta as its biggest clients. In a recent statement, Nvidia invested in the company and committed to continue growing its business.

The most recent earnings report showed that its revenue jumped by 27% in the third quarter to $1.8 billion. Its gross margin jumped by 105 basis points to 36%, while its earnings-per-share surged by 55%. 

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75% of its revenue came from the data center segment, with the remaining one being in the industrial business. The role of the data center business has become more pronounced in the past few months as companies have continued boosting their spending. The biggest names in the industry plan to spend over $700 billion this year.

And Nvidia, the biggest company in the world, has come up with a partnership worth $500 billion. This deal will see top financial services provide $500 billion to companies in the AI space, with some of these funds going to a company like Coherent.

Coherent is working hard to take advantage of this opportunity. It plans to double its InP output by the end of the year and then double it to 2027. The risk of doing this is that the industry is highly cyclical, meaning that the prices of its products may drop in the coming years.

Coherent’s earnings are coming up

The next important catalyst for the COHR stock will be its earnings report that comes out on Wednesday. Yahoo Finance data shows that its revenue is expected to be $1.98 billion, up by 29.5% YoY. Coherent has a long track record of doing better than estimates, meaning that its real figure will be higher than expected. 

The same is true with its earnings, which are expected to jump from $1 in the same quarter last year to $1.62. If these numbers are correct, its annual revenue will hit $7 billion, up by 21% YoY, followed by $9.66 billion next year.

These numbers, together with its guidance, will help to justify its valuation. Its forward price-to-earnings ratio stands at 59.67, higher than the sector median of 23.67. 

What next for Coherent stock?

Wall Street analysts have a bullish outlook for the company, pointing to its revenue growth. For example, Raymond James recently boosted its target from $371 to $435, while Rosenblatt Securities hiked the target to $425. 

In May, Rothschild’s Mike Harrison boosted his target from $455 to $461, while Bank of America hiked from $365 to $400. 

Options expiring on Friday this week indicate an implied volatility of 156%, higher than the historical one of 115%. The volume-based put-to-call ratio of 1.46, while the open interest has a PCR of 1.26. This means that there are more puts than calls, which, in theory, is a bearish positioning. 

The fact that the volume PCR is 1.46, it indicates that today’s activity is more put-heavy than the existing positioning, signaling more hedging or bearish speculation.