Coherent's Characterization Of Cutting Market In China As "Growth Opportunity": Analyst Digs In

Needham analyst Jim Ricchiuti reiterated a Buy rating on Coherent Corp. COHR, raising the price target to $52 from $46.

Industrial, the broadest of COHR’s market verticals (38% of FQ1’24 revenue), is experiencing some of the biggest macro headwinds but is expected to show improvement over the course of CY24, the analyst writes.

Over the near to intermediate term, the analyst highlights the company's positive takeaways on the two biggest parts of the Industrial business — semi-cap and display.

COHR reaffirmed its confident tone on the semi-cap business in F24, with expectations of double-digit growth driven by continued strength in front-end WFE that accounted for ~85% of COHR’s semi-cap revenue in F23, the analyst notes.

Although weak utilization has been a drag on display growth, COHR expects 70% growth in the excimer laser business from 2023-2028, according to Ricchiuti.

COHR’s characterization of the cutting market in China as a growth opportunity might elicit a somewhat different view from other western fiber laser companies that backed away from the Chinese cutting market in the wake of price competition from local suppliers, the analyst adds.

COHR sized the overall TAM for Industrial at $22 billion in CY23, with a projected five-year CAGR of 9%. This compares with the 16% CAGR COHR sees in Communications, the largest TAM it addresses (est. $23 billion).

The analyst expects FY24 EPS of $1.20, raising the estimates for revenues to $4.598 billion from $4.578 billion.

Price Action: COHR shares are trading lower by 1.75% to $43.34 on the last check Friday.

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