Rosenblatt Defends Lumentum Holdings, Highlights Encouraging Outlook

Optical and photonic products maker Lumentum Holdings Inc LITE reported fiscal second-quarter results Tuesday that prompted a sell-off in the stock, but Rosenblatt Securities remains bullish. 

What Happened

Lumentum Holdings' revenue for the December-ending quarter fell 7.6 percent from last year but rose 5.5 percent from the prior quarter to $373.7 million, which includes a $29.6-million contribution from Oclaro.

By segment, optical communications sales fell 9.6 percent year-over-year to $325.4 million as growth in telecom was offset by declines in datacom and industrial and consumer. Laser revenue rose 9.8 percent to $48.3 million.

Gross margins fell 480 basis points from last year to 40.1 percent due to lower margins in the industrial laser business.

Why It's Important

The datacom and industrial laser businesses slightly fell short of expectations, but overall topline growth was mostly in-line with expectations, Rosenblatt Securities' Jun Zhang said in a research report.

While the quarter did show gross margin pressure, it can be partly attributed to the Oclaro acquisition and should improve from more potential design wins from the Android market, the consolidation of manufacturing, improvement in R&D and sales growth and favorable 3D sensing trends, the analyst said. 

Rosenblatt maintains a Buy rating on Lumentum with an unchanged $80 price target.

What's Next

Lumentum guided its March-ending quarter revenue to be in a range of $420 to $440 million, which is short of Zhang's estimates of $445 million. The low end of the range touches the consensus estimate of $421 million.

Lumentum expects the datacom business to remain weak in the March quarter, but said synergies from the Oclaro acquisition should ramp in the June quarter and beyond.

Lumentum shares were down 5.42 percent at $46.95 at the time of publication Tuesday. 

Related Links:

Analysts Forecast What's Next For Lumentum After The Oclaro Acquisition

Morgan Stanley Stays Neutral On Lumentum, But Sees Path To Bull Case