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After Coherent reported its November results, we updated our fair value. We moved our rating from Watch to Buy because of the speed at which artificial intelligence customers are moving from copper cables to optical connections. We have added two things to our projections: the higher profit targets management set for 2028 and the cash drain caused by the $760 million jump in inventory this quarter. We also started tracking the share of sales coming from the networking business, which grew to 82% over the last three months.
Coherent reported a strong start to its fiscal year, with revenue hitting $2.37 billion and adjusted earnings of $2.09 per share, both coming in higher than analysts expected. The company is seeing a massive surge in demand for the laser parts and connectors that link AI computing clusters together, which helped drive total sales up 50 percent compared to last year.
This is a key step for the new CEO's plan to turn the company around by focusing on high-end tech. Gross margin, which is the percentage of sales left after paying for the parts themselves, rose to 40.6 percent. This improvement shows that Coherent is successfully shifting toward more profitable products, even as it works through a heavy debt load from past acquisitions. While the stock fell about 6 percent today alongside other chip companies, the underlying business is growing faster than it has in years.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Coherent is set to report its latest results today. Analysts expect the company to bring in about 2.31 billion dollars in revenue. The key thing to watch is the networking business, which makes the high-speed connectors used in AI data centers. We will be looking for signs that the company is successfully shifting toward these higher-profit parts to help pay down its debt.
Susquehanna lowered its price target for the stock from $425 to $350 while keeping its positive rating. This move follows a period of volatility for the company, though the new target still sits well above where the stock trades today. Three other firms also adjusted their targets recently, bringing the average analyst target to about $382. These shifts generally reflect analysts resetting their expectations after the stock fell earlier this month, rather than a change in the underlying business.
Source: Susquehanna
The company is set to share its latest financial results on November 4. Analysts are looking for revenue of about 2.3 billion dollars and earnings of 1.98 dollars per share. This update will be an important look at how well the company is managing its shift toward higher-margin AI networking parts and whether it is continuing to pay down its debt as planned.
Management has beaten its own profit targets for eight straight quarters. The business is consistently outrunning even its own forecasts as the shift to high-speed AI networking happens faster than expected.
| Expectation | |
|---|---|
| EPS | $2.23 |
| Revenue | $2.57B |