Jefferies sets Lumentum stock Buy rating, $100 target

On Friday, Jefferies resumed coverage on Lumentum Holdings Inc . (NASDAQ:LITE), issuing a Buy rating and setting a price target of $100.00, well above the current trading price of $76.34. The firm’s coverage highlights Lumentum’s potential in the electro-absorption modulated laser (EML) market, which is currently experiencing high demand and positive pricing trends. According to InvestingPro data, 13 analysts have recently revised their earnings estimates upward for the upcoming period, with price targets ranging from $70 to $125.

Lumentum, recognized for its expertise in laser production and commanding a market capitalization of $5.25 billion, is one of only three producers of EMLs, a technology increasingly favored for high-speed data transmission as lane speeds advance to 200G per lane. This advancement is essential for achieving 1.6 terabits per second data rates, a benchmark at which current vertical-cavity surface-emitting laser (VCSEL) solutions are ineffective. While the company posted revenues of $1.41 billion in the last twelve months, InvestingPro analysis reveals strong financial health indicators, including a robust current ratio of 4.76, indicating solid short-term liquidity.

The EML laser market is reported to be sold out through the end of the year, which is expected to drive strong growth for Lumentum. This market opportunity has already reflected in the company’s stock performance, with a significant 35.38% price return over the past six months. According to Jefferies, the company’s historical challenges in competing with VCSEL technology are mitigated by the market’s shift towards EMLs, an area where Lumentum’s capabilities are more aligned. For deeper insights into Lumentum’s growth prospects and detailed financial analysis, investors can access the comprehensive Pro Research Report available on InvestingPro.

In addition to EMLs, continuous-wave (CW) lasers, which utilize silicon photonics, are gaining traction as an alternative due to the limited supply of EMLs against surging demand. Lumentum is also positioned to contribute to early back-end designs in coherent pluggable optics (CPO), a market that is anticipated to expand as it progresses to front-end network applications.

Jefferies’ commentary underscores Lumentum’s strategic positioning within the laser market and its opportunities for growth, as the industry transitions to higher-speed solutions and faces a supply-demand imbalance that favors EML producers.

In other recent news, Lumentum Holdings Inc. reported fiscal second-quarter results that surpassed analyst expectations. The company posted adjusted earnings per share of $0.42, exceeding the projected $0.35. Revenue for the quarter reached $402.2 million, surpassing the consensus forecast of $388.86 million and marking a 9.7% increase year-over-year. Despite these positive results, Lumentum’s guidance for the fiscal third quarter did not significantly impress the market. The company expects Q3 revenue between $410 million and $425 million, slightly above the consensus estimate of $413.8 million. Lumentum also forecasts adjusted earnings per share of $0.47 to $0.53, which is higher than the analyst expectation of $0.41. The Cloud & Networking segment notably increased revenue by 18.3% year-over-year to $339.2 million, while the Industrial Tech segment saw a 21.3% decline to $63 million. Lumentum continues to aim for $500 million in quarterly revenue by the end of 2025, supported by its strong market position and favorable industry trends.

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