Coherent's AI Optical Transceiver And CEOs Turnaround Push Drive Growth: BofA Analyst

Coherent Corp COHR stock is trading higher Monday after BofA Securities analyst Vivek Arya upgraded the stock rating from Neutral to Buy with a price target of $75, up from $65.

Arya expects a start of recovery in the second half of the calendar year 2024 and is forecasted to accelerate 13% sales CAGR from fiscal 2024-2027.

The most important driver will be Coherent’s datacom transceiver business (40% of sales), which will be levered to high-speed Ethernet connections between servers and switches in data centers, as per the analyst.

Arya highlighted the rapidly growing size of large language models, which is expanding AI clusters to 100K+ accelerators versus 30K currently, driving exponentially higher connectivity requirements.

Arya noted improved prospects for Coherent to double proforma-EPS to $4 by fiscal 2026, backed by growth reacceleration to 13%+ CAGR driven by the surging AI optical transceiver market.

Arya expressed conviction in the new CEO, Jim Anderson, who is driving operational improvements, especially gross margin expansion from 36% to 40%+ and EBIT margins towards 20%—25% from 15%. CEO and industry veteran Jim Anderson is well regarded for his prior turnaround at Lattice Semiconductor Corp LSCC.

The new management could also help focus Coherent from efforts currently spread across telco, industrial, auto (Silicon Carbide), and consumer markets, Arya said.

The analyst writes that free cash flow expansion towards 10% from 2% could help de-lever the balance sheet ($4.1 billion debt currently), which is a 30% drag on reported EPS.

The price target is based on 22x calendar 2025 price-to-earnings versus 19x prior, reflecting greater confidence in operational focus and execution under newly hired CEO Jim Anderson.

Arya projected fourth-quarter revenue and EPS of $1.28 billion and $0.60.

Price Action: COHR shares are up 4.26% at $66.04 at the last check Monday.

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