Coherent's AI-Driven Optical Transceiver and CEO's Turnaround Strategy Spark BofA Upgrade

Coherent's AI Optical Transceiver And CEOs Turnaround Push Drive Growth: BofA Analyst - Coherent (NYSE:COHR)

Coherent Corp gains as new CEO drives operational improvements and growth. Coherent Corp COHR stock is trading higher Monday after BofA Securities analyst Vivek Arya upgraded the stock rating from Neutral to Buy with a price target of $75, up from $65. Arya expects a start of recovery in the second half of the calendar year 2024 and is forecasted to accelerate 13% sales CAGR from fiscal 2024-2027. The most important driver will be Coherent's datacom transceiver business (40% of sales), which will be levered to high-speed Ethernet connections between servers and switches in data centers, as per the analyst. Arya highlighted the rapidly growing size of large language models, which is expanding AI clusters to 100K+ accelerators versus 30K currently, driving exponentially higher connectivity requirements. Arya noted improved prospects for Coherent to double proforma-EPS to $4 by fiscal 2026, backed by growth reacceleration to 13%+ CAGR driven by the surging AI optical transceiver market. Arya expressed conviction in the new CEO, Jim Anderson, who is driving operational improvements, especially gross margin expansion from 36% to 40%+ and EBIT margins towards 20% -- 25% from 15%. CEO and industry veteran Jim Anderson is well regarded for his prior turnaround at Lattice Semiconductor Corp LSCC. The new management could also help focus Coherent from efforts currently spread across telco, industrial, auto (Silicon Carbide), and consumer markets, Arya said. The analyst writes that free cash flow expansion towards 10% from 2% could help de-lever the balance sheet ($4.1 billion debt currently), which is a 30% drag on reported EPS. The price target is based on 22x calendar 2025 price-to-earnings versus 19x prior, reflecting greater confidence in operational focus and execution under newly hired CEO Jim Anderson. Arya projected fourth-quarter revenue and EPS of $1.28 billion and $0.60. Price Action: COHR shares are up 4.26% at $66.04 at the last check Monday. Photo via Company Market News and Data brought to you by Benzinga APIs

BofA raises Coherent stock to buy, price target lifted on growth By Investing.com

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. 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).