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Coherent After a Record FY26: Is the Stock a Buy After Q4 Earnings?
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Key Takeaways
Coherent posted record FY26 revenues of $7.1B as Datacenter & Communications growth accelerated.
COHR's margin gains were driven by yields, lower input costs, pricing and six-inch InP production.
Coherent faces higher capex and inventory as capacity constraints persist and industrial revenues decline.
We gave Coherent’s (COHR - Free Report) fiscal fourth-quarter results a few trading sessions to settle before revisiting the investment case. That pause has produced a useful signal: COHR stock has declined only about 1.3% since the Aug. 12 release, an effectively negligible move for a stock tied to the volatile AI-infrastructure trade.
The subdued reaction does not appear to reflect weak results. Instead, it likely captures a balance between impressive fiscal 2027 guidance and expectations that were already elevated. Coherent now must turn extraordinary demand into output while managing heavy capacity investment and a lingering contraction in its industrial business.
COHR’s Revenue Growth Accelerates Into the Year-End
Fiscal fourth-quarter revenues crossed $2 billion, beating the Zacks Consensus estimate by 2.7% and increasing 33.8% year over year and 13.3% sequentially. On a pro forma basis, adjusting for divested operations, growth was approximately 42%. The result also exceeded the preceding quarter’s $1.8 billion and marked Coherent’s first quarter above $2 billion.
Image Source: COHR
Full-year revenues rose 22.5% year over year to a record $7.1 billion from $5.8 billion. Pro forma growth was stronger at approximately 28%, reinforcing that the underlying portfolio expanded faster than the reported total after accounting for business sales.
The Datacenter & Communications segment provided nearly all the momentum. Quarterly segment revenues climbed to $1.6 billion, up 58.6% year over year and 18.6% quarter over quarter. It represented roughly 79% of consolidated revenues, compared with about 67% a year earlier.
Industrial revenues moved in the opposite direction, falling 15.8% year over year and 3% sequentially to $430.5 million. For the full year, Datacenter & Communications advanced 40.5% to $5.275 billion, while Industrial declined 10.3% to $1.8 billion. Coherent’s growth profile is therefore becoming more concentrated around AI networking and optical connectivity.
Margin Expansion Made the Growth More Valuable
The earnings quality improved alongside revenues. GAAP gross margin expanded to 38.5%, up 277 basis points year over year and 82 basis points sequentially. Non-GAAP gross margin reached 40.2%, improving 215 basis points annually and 66 basis points from the fiscal third quarter.
Image Source: COHR
Manufacturing yields, lower input costs, pricing actions and progress on six-inch indium phosphide production contributed to the expansion. The six-inch platform is especially important because it can produce roughly four times the output at about half the cost of the older three-inch process.
Non-GAAP operating income increased 62.1% year over year and 21.8% sequentially to $446 million. The corresponding operating margin reached 21.8%, expanding 381 basis points year over year and 152 basis points quarter over quarter.
Adjusted net income rose 82.7% annually and 27.2% sequentially to $351 million. Non-GAAP EPS increased 74% year over year and 23.4% quarter over quarter to $1.74, beating the Zacks Consensus Estimate by 7.4%. GAAP EPS improved to $1.19 from a loss of $0.83 one year earlier and $0.97 in the preceding quarter.
COHR’s Guidance Points to Another Step-Up
For the first quarter of fiscal 2027, Coherent expects revenues of $2.2 billion to $2.4 billion. The $2.3 billion midpoint implies approximately 12.4% sequential growth and about 45.6% growth from first-quarter fiscal 2026 revenues of $1.58 billion. The comparison is not perfectly like-for-like because of portfolio changes, but the acceleration remains substantial.
The company expects non-GAAP gross margin of 39.5%-41.5%. Its 40.5% midpoint would represent a modest 30-basis-point sequential improvement. Projected adjusted EPS of $1.85-$2.05 implies midpoint growth of 12.1% from the fiscal fourth quarter and approximately 68% year over year.
This outlook probably explains why the post-report decline has remained minor. Guidance exceeded the prior quarter’s scale and established a credible path toward a quarterly revenue run rate above $3 billion by fiscal 2027’s end. However, that target also raises the execution threshold embedded in COHR shares.
Capacity Spending Raises Both Potential and Risk
Indium phosphide production remains the principal constraint, although output is scheduled to double year over year during the current quarter. Demand visibility extends into calendar 2028, supported by long-term agreements running through the decade. Additional growth should come from 800-gigabit and 1.6-terabit transceivers, optical circuit switching, co-packaged optics, multi-rail systems and the PhotonLink platform.
Supporting those opportunities requires substantial spending. Fourth-quarter capital expenditures reached $556 million, while full-year additions to property, plant and equipment surged 150.2% to $1.103 billion. Annual operating cash flow nevertheless fell 87.5% to $79.5 million.
Inventory increased 79.5% year over year to $2.581 billion, considerably faster than revenues. Although expanding inventory can support a rapid production ramp, it also raises working-capital and demand-forecasting risk. Positively, total debt declined approximately 12.6% to $3.222 billion, and cash increased 27.8% to $1.162 billion.
COHR Is a Hold Until Execution Catches Up
Coherent earns a Hold because its operating momentum is powerful, but the investment case now demands flawless delivery. AI-driven optical demand, improving manufacturing economics and broader product ramps support durable growth, while rising margins show that revenues are converting into profit. Yet capacity remains the bottleneck, capital intensity is climbing, inventory has expanded sharply, and the industrial business is still shrinking. The muted post-earnings reaction suggests investors already recognize both the opportunity and the execution burden. Existing shareholders can stay positioned for the optical buildout, but fresh buyers should await clearer evidence that capacity expansion translates smoothly into cash generation.
Trane Technologies (TT - Free Report) reported impressive second-quarter 2026 results. TT’s adjusted earnings of $4.31 per share beat the consensus mark by 0.9% and rose 11.1% from the year-ago quarter’s actual. TT’s total revenues of $6.35 billion surpassed the consensus mark by 2.9% and increased 6.4% year over year.
Rollins (ROL - Free Report) posted unimpressive second-quarter 2026 results. ROL’s adjusted earnings of 32 cents per share missed the Zacks Consensus Estimate by 5.9% but rose 6.7% year over year. Total revenues of $1.08 billion fell short of the consensus estimate by 1.7% but increased 7.9% from the year-ago quarter.
Verisk (VRSK - Free Report) reported second-quarter 2026 diluted adjusted earnings of $1.98 per share, beating the Zacks Consensus Estimate of $1.94 by 2.1%. The figure increased 5.3% from the year-ago quarter. Revenues of $806.3 million topped the consensus mark of $802.4 million by 0.5% and rose 4.3% year over year.
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Coherent After a Record FY26: Is the Stock a Buy After Q4 Earnings?
Key Takeaways
We gave Coherent’s (COHR - Free Report) fiscal fourth-quarter results a few trading sessions to settle before revisiting the investment case. That pause has produced a useful signal: COHR stock has declined only about 1.3% since the Aug. 12 release, an effectively negligible move for a stock tied to the volatile AI-infrastructure trade.
The subdued reaction does not appear to reflect weak results. Instead, it likely captures a balance between impressive fiscal 2027 guidance and expectations that were already elevated. Coherent now must turn extraordinary demand into output while managing heavy capacity investment and a lingering contraction in its industrial business.
COHR’s Revenue Growth Accelerates Into the Year-End
Fiscal fourth-quarter revenues crossed $2 billion, beating the Zacks Consensus estimate by 2.7% and increasing 33.8% year over year and 13.3% sequentially. On a pro forma basis, adjusting for divested operations, growth was approximately 42%. The result also exceeded the preceding quarter’s $1.8 billion and marked Coherent’s first quarter above $2 billion.
Full-year revenues rose 22.5% year over year to a record $7.1 billion from $5.8 billion. Pro forma growth was stronger at approximately 28%, reinforcing that the underlying portfolio expanded faster than the reported total after accounting for business sales.
The Datacenter & Communications segment provided nearly all the momentum. Quarterly segment revenues climbed to $1.6 billion, up 58.6% year over year and 18.6% quarter over quarter. It represented roughly 79% of consolidated revenues, compared with about 67% a year earlier.
Industrial revenues moved in the opposite direction, falling 15.8% year over year and 3% sequentially to $430.5 million. For the full year, Datacenter & Communications advanced 40.5% to $5.275 billion, while Industrial declined 10.3% to $1.8 billion. Coherent’s growth profile is therefore becoming more concentrated around AI networking and optical connectivity.
Margin Expansion Made the Growth More Valuable
The earnings quality improved alongside revenues. GAAP gross margin expanded to 38.5%, up 277 basis points year over year and 82 basis points sequentially. Non-GAAP gross margin reached 40.2%, improving 215 basis points annually and 66 basis points from the fiscal third quarter.
Manufacturing yields, lower input costs, pricing actions and progress on six-inch indium phosphide production contributed to the expansion. The six-inch platform is especially important because it can produce roughly four times the output at about half the cost of the older three-inch process.
Non-GAAP operating income increased 62.1% year over year and 21.8% sequentially to $446 million. The corresponding operating margin reached 21.8%, expanding 381 basis points year over year and 152 basis points quarter over quarter.
Adjusted net income rose 82.7% annually and 27.2% sequentially to $351 million. Non-GAAP EPS increased 74% year over year and 23.4% quarter over quarter to $1.74, beating the Zacks Consensus Estimate by 7.4%. GAAP EPS improved to $1.19 from a loss of $0.83 one year earlier and $0.97 in the preceding quarter.
COHR’s Guidance Points to Another Step-Up
For the first quarter of fiscal 2027, Coherent expects revenues of $2.2 billion to $2.4 billion. The $2.3 billion midpoint implies approximately 12.4% sequential growth and about 45.6% growth from first-quarter fiscal 2026 revenues of $1.58 billion. The comparison is not perfectly like-for-like because of portfolio changes, but the acceleration remains substantial.
The company expects non-GAAP gross margin of 39.5%-41.5%. Its 40.5% midpoint would represent a modest 30-basis-point sequential improvement. Projected adjusted EPS of $1.85-$2.05 implies midpoint growth of 12.1% from the fiscal fourth quarter and approximately 68% year over year.
This outlook probably explains why the post-report decline has remained minor. Guidance exceeded the prior quarter’s scale and established a credible path toward a quarterly revenue run rate above $3 billion by fiscal 2027’s end. However, that target also raises the execution threshold embedded in COHR shares.
Capacity Spending Raises Both Potential and Risk
Indium phosphide production remains the principal constraint, although output is scheduled to double year over year during the current quarter. Demand visibility extends into calendar 2028, supported by long-term agreements running through the decade. Additional growth should come from 800-gigabit and 1.6-terabit transceivers, optical circuit switching, co-packaged optics, multi-rail systems and the PhotonLink platform.
Supporting those opportunities requires substantial spending. Fourth-quarter capital expenditures reached $556 million, while full-year additions to property, plant and equipment surged 150.2% to $1.103 billion. Annual operating cash flow nevertheless fell 87.5% to $79.5 million.
Inventory increased 79.5% year over year to $2.581 billion, considerably faster than revenues. Although expanding inventory can support a rapid production ramp, it also raises working-capital and demand-forecasting risk. Positively, total debt declined approximately 12.6% to $3.222 billion, and cash increased 27.8% to $1.162 billion.
COHR Is a Hold Until Execution Catches Up
Coherent earns a Hold because its operating momentum is powerful, but the investment case now demands flawless delivery. AI-driven optical demand, improving manufacturing economics and broader product ramps support durable growth, while rising margins show that revenues are converting into profit. Yet capacity remains the bottleneck, capital intensity is climbing, inventory has expanded sharply, and the industrial business is still shrinking. The muted post-earnings reaction suggests investors already recognize both the opportunity and the execution burden. Existing shareholders can stay positioned for the optical buildout, but fresh buyers should await clearer evidence that capacity expansion translates smoothly into cash generation.
COHR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recent Earnings Snapshots
Trane Technologies (TT - Free Report) reported impressive second-quarter 2026 results. TT’s adjusted earnings of $4.31 per share beat the consensus mark by 0.9% and rose 11.1% from the year-ago quarter’s actual. TT’s total revenues of $6.35 billion surpassed the consensus mark by 2.9% and increased 6.4% year over year.
Rollins (ROL - Free Report) posted unimpressive second-quarter 2026 results. ROL’s adjusted earnings of 32 cents per share missed the Zacks Consensus Estimate by 5.9% but rose 6.7% year over year. Total revenues of $1.08 billion fell short of the consensus estimate by 1.7% but increased 7.9% from the year-ago quarter.
Verisk (VRSK - Free Report) reported second-quarter 2026 diluted adjusted earnings of $1.98 per share, beating the Zacks Consensus Estimate of $1.94 by 2.1%. The figure increased 5.3% from the year-ago quarter. Revenues of $806.3 million topped the consensus mark of $802.4 million by 0.5% and rose 4.3% year over year.