Why This Lumentum Analyst Is Bullish After Coherent M&A Deal Falls Apart

Lumentum Holdings Inc LITE made a good decision to shelve its plans to acquire Coherent Inc COHR, as the bidding war had taken the company to an elevated valuation, according to Raymond James.

The Lumentum Holdings Analyst: Simon Leopold upgraded Lumentum Holdings from Outperform to Strong Buy with a $112 price target. 

The Lumentum Holdings Takeaways: The decision to walk away from the bidding war demonstrates management's discipline in “selecting its battles,” Leopold said in the upgrade note.

“We do not ascribe to the bear argument that Lumentem needed to acquire Coherent. So, we do not anticipate it will immediately bid on an alternate target,” the analyst said. 

3D sensing continues to be “a driver for upside,” he said.

“We suspect the iPhone 13 will feature a new module that could present an opportunity for Lumentum to retake share. Further, the ramp of Android phones adds a growth dimension,” Leopold said. 

“With the deal risk behind us, and upside led by 3D sensing, telecom, LiDAR and 5G, we see an attractive entry point.” 

LITE Price Action: Shares of Lumentum Holdings were trading 4.74% higher at $89.80 at last check Friday. 

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