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On Friday, Citi increased its price target on shares of Coherent (NYSE:COHR) to $88.00, up from the previous target of $76.00, while maintaining a Buy rating on the stock. The rise in the target price came after Coherent's shares saw a 2% increase at market close on Thursday, which was attributed to the encouraging remarks from the new CEO and the company's financial performance that surpassed expectations for the June quarter.
The company's guidance for the September quarter was generally as expected, but the market reacted favorably to CEO Jim Anderson's approach toward enhancing profitability. Anderson's strategy includes concentrating on high-growth and profitable segments, implementing a new company-wide pricing and cost optimization plan, and boosting operational efficiency. Although more details on the strategic review are anticipated, initial efforts are being well-received.
Citi's analysis suggests that with effective execution of these strategies, Coherent could achieve a gross margin exceeding 40% before the previously anticipated first half of fiscal year 2026. The investment firm remains optimistic about the company's prospects, particularly in the area of AI transceivers, which are projected to be a key driver of growth. Expectations are set for the 800G+ product line to see a growth rate of over 90% year-over-year.
The revised price target of $88 is based on a consistent price-to-earnings (PE) ratio of 20 times the forecasted fiscal year 2026 earnings per share (EPS) of $4.42. This adjustment reflects confidence in Coherent's potential for sustained profitability and growth under the new leadership and strategic direction.
In other recent news, Coherent Corp. reported fourth-quarter earnings that surpassed analyst estimates, delivering a revenue increase of 9.1% year-over-year to $1.31 billion. This outperformed the forecasted $1.28 billion. The company's adjusted earnings per share were $0.61, slightly above the consensus forecast of $0.60.
For the upcoming first quarter of fiscal 2025, Coherent anticipates revenue to fall between $1.27 billion and $1.35 billion. The company's adjusted EPS is projected to range from $0.53 to $0.69. Gross margin is estimated to be 36-38% on a non-GAAP basis, while operating expenses are expected to vary from $260 million to $280 million.
In addition to these financial highlights, the company reported strong sequential growth in 800G AI-related Datacom transceiver revenue during the quarter. Coherent also secured its first bulk order for new Linebeam annealing systems for Gen 8 fabs, a development propelled by the initial adoption of OLED in tablets and laptops. These are the recent developments surrounding Coherent Corp.
InvestingPro Insights
Following Citi's optimistic adjustment of Coherent's price target, current data from InvestingPro provides additional context to the company's financial health and market performance. With a market capitalization of approximately $10.87 billion and a rather high P/E ratio of 56.98, investors are pricing in expectations for future growth, despite recent volatility in stock price movements. This optimism seems to be in line with the significant return over the last year, with a 116.2% increase in the stock's price total return, indicating strong investor confidence.
InvestingPro Tips underscore that while Coherent has experienced a high return over the last week and the last three months, analysts are anticipating a sales decline in the current year. However, the company is expected to become profitable this year, which aligns with the strategic initiatives laid out by CEO Jim Anderson. Notably, Coherent's liquid assets exceed its short-term obligations, suggesting a solid financial position for near-term operations. For investors seeking a comprehensive analysis, InvestingPro offers several additional tips on Coherent's financial outlook and market potential.
These insights, drawn from InvestingPro's real-time data and expert analysis, provide a deeper understanding of Coherent's financial landscape and may aid investors in making informed decisions. Interested readers can find further details and tips by visiting https://www.investing.com/pro/COHR, which includes a total of 12 InvestingPro Tips on Coherent.
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