Raymond James: Lumentum Still A 'Strong Buy' Despite Apple's Guidance Cut

The bullish case for optical component supplier Lumentum Holdings Inc LITE remains unchanged despite Apple Inc. AAPL cautioning investors Wednesday afternoon, according to Raymond James.

The Analyst

Raymond James' Simon Leopold maintains a Strong Buy rating on Lumentum with a price target lowered from $87 to $85.

The Thesis

Apple lowered its sales December-ending quarter sales guidance from $91 billion at the midpoint of its prior guidance to around $84 billion and this is "bad news" for component supplier Lumentum, Leopold said in a research note. But the financial impact to Lumentum is likely to be $26 million spread across multiple quarters as Lumentum said in a December conference shipments to Apple continued, which implies Apple's guidance has a lagged effect.

 Lumentum is likely to continue diversifying its business away from Apple and into the Android ecosystem in both optical components and new 3D applications, the analyst said. In fact, a sum-of-the-parts valuation model values Lumentum's stock at $37 to $44 without the 3D prospect, which is near Thursday morning's level. Including the company's 3D prospects would value the stock in a range of $58 to $62.

Bottom line, Lumentum's strength across optical, industrial lasers and a strong outlook for 3D sensing remains unchanged and the stock remains attractive despite the 8 percent decline following Apple's announcement.

Price Action

Shares of Lumentum were trading lower by 9 percent $38.75 Thursday morning.

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