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Coherent's Robust Margin Expansion: Is This Key to Its Growth Engine?
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Key Takeaways
COHR delivered a 249-bps gross margin and a 1,081-bps operating margin expansion in Q1 FY26.
COHR's revenues rose 17.3% YoY, driven by product demand and adoption of its 1.6T transceiver.
COHR is ramping up 6-inch InP production and sees a $2B optical circuit switch market.
Coherent Corp. (COHR - Free Report) registered a 249-basis-point (bps) year-over-year growth in gross margin during the first quarter of fiscal 2026, with operating margin witnessing a whopping 1,081 bps expansion. This lofty improvement highlights the company’s true potential at maximizing value from its business model, which revolves around AI infrastructure.
A high demand experienced by COHR, combined with its prudent expense optimization measures and strategic divestiture, drove its margins. During the aforementioned quarters, its top line registered 17.3% year-over-year growth, primarily driven by high demand for its product portfolio. Coherent noted the rapid adoption of its 1.6T transceiver, which is expected to grow further in 2026, as remarked by its CEO.
Higher yields have been witnessed in 6-inch Indium Phosphide (InP) compared with the 3-inch ones. Banking on the rampant growth of AI datacenters, management decided to start 6-inch InP production in Jarfalla, Sweden. On the Optical Circuit Switch front, management has identified its addressable market to have a value of over $2 billion, providing a significant growth opportunity.
COHR witnessed a 2.7% year-over-year rise in its total cost and expense during the first quarter of fiscal 2026, which we believe is not significant given the soaring demand. Furthermore, the recent divestiture of the Aerospace & Defense business was accretive to gross margin and EPS, aiding profitability. All in all, Coherent is scaling revenues while maintaining a leaner and profitable structure.
COHR’s Price Performance, Valuation & Estimates
Coherent stock has surged 84.9% in a year compared with the industry’s 17% growth. Its industry peer Adeia Inc. (ADEA - Free Report) has gained 33.9%, while Skillsoft (SKIL - Free Report) has lost 69.5% during the same time frame.
One-Year Share Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, COHR trades at a forward 12-month price-to-sales ratio of 3.78X, higher than Adeia’s and Skillsoft’s 4.72X and 0.15X, respectively.
Price/Sales - F12M
Image Source: Zacks Investment Research
Coherent has a Value Score of D. Adeia and Skillsoft carry a Value Score of C and A, respectively.
The Zacks Consensus Estimate for COHR’s earnings for fiscal 2026 and 2027 has increased 1.6% and 1.1%, respectively, over the past 60 days.
Image: Bigstock
Coherent's Robust Margin Expansion: Is This Key to Its Growth Engine?
Key Takeaways
Coherent Corp. (COHR - Free Report) registered a 249-basis-point (bps) year-over-year growth in gross margin during the first quarter of fiscal 2026, with operating margin witnessing a whopping 1,081 bps expansion. This lofty improvement highlights the company’s true potential at maximizing value from its business model, which revolves around AI infrastructure.
A high demand experienced by COHR, combined with its prudent expense optimization measures and strategic divestiture, drove its margins. During the aforementioned quarters, its top line registered 17.3% year-over-year growth, primarily driven by high demand for its product portfolio. Coherent noted the rapid adoption of its 1.6T transceiver, which is expected to grow further in 2026, as remarked by its CEO.
Higher yields have been witnessed in 6-inch Indium Phosphide (InP) compared with the 3-inch ones. Banking on the rampant growth of AI datacenters, management decided to start 6-inch InP production in Jarfalla, Sweden. On the Optical Circuit Switch front, management has identified its addressable market to have a value of over $2 billion, providing a significant growth opportunity.
COHR witnessed a 2.7% year-over-year rise in its total cost and expense during the first quarter of fiscal 2026, which we believe is not significant given the soaring demand. Furthermore, the recent divestiture of the Aerospace & Defense business was accretive to gross margin and EPS, aiding profitability. All in all, Coherent is scaling revenues while maintaining a leaner and profitable structure.
COHR’s Price Performance, Valuation & Estimates
Coherent stock has surged 84.9% in a year compared with the industry’s 17% growth. Its industry peer Adeia Inc. (ADEA - Free Report) has gained 33.9%, while Skillsoft (SKIL - Free Report) has lost 69.5% during the same time frame.
One-Year Share Price Performance
From a valuation perspective, COHR trades at a forward 12-month price-to-sales ratio of 3.78X, higher than Adeia’s and Skillsoft’s 4.72X and 0.15X, respectively.
Price/Sales - F12M
Coherent has a Value Score of D. Adeia and Skillsoft carry a Value Score of C and A, respectively.
The Zacks Consensus Estimate for COHR’s earnings for fiscal 2026 and 2027 has increased 1.6% and 1.1%, respectively, over the past 60 days.
COHR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.