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COHR Falls 17% in a Month: Is the Sell-Off an Opportunity?
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Key Takeaways
Coherent shares fell 17% in a month despite fiscal 2026 revenues rising 22.5% to $7.12 billion.
Coherent's fiscal 2027 is essentially booked through calendar 2027, with customer orders extending into 2028.
Coherent's Q4 capex jumped to $556 million as operating cash flow fell to $79.5 million.
Coherent Corp. (COHR - Free Report) shares have fallen 17% in the past month despite rapidly improving operating results. Fiscal 2026 revenues climbed 22.5% to $7.12 billion as AI-driven Datacenter and Communications demand accelerated.
Image Source: Zacks Investment Research
The investment debate now centers on whether Coherent can convert its record demand visibility into profitable cash flow. Rising capacity spending, working-capital needs and several overlapping product ramps keep execution risk elevated even as the growth runway lengthens.
COHR's AI Demand Backdrop Remains Strong
Datacenter and Communications generated $5.27 billion in fiscal 2026 revenues, up 40.5% year over year, and represented 79% of fourth-quarter revenues. Fiscal 2027 is essentially booked through the end of calendar 2027.
Customer orders now extend into calendar 2028, while long-term agreements reach through the end of the decade. Coherent also expects quarterly revenues to exceed $3 billion by the end of fiscal 2027, supported by capacity growth and new optical platforms.
Coherent's Margin Expansion Supports the Bull Case
Adjusted gross margin reached 40.2% in the fiscal fourth quarter, up 215 basis points year over year. Full-year adjusted gross margin improved 152 basis points to 39.4%, helped by lower input costs, better manufacturing yields and pricing optimization.
Six-inch indium phosphide wafers offer roughly four times the output at about half the cost of three-inch wafers, while yields are also higher. As that platform scales, management expects further margin improvement from its lower cost structure.
COHR's Cash Flow and Capex Raise Near-Term Risk
Fourth-quarter capital expenditures jumped to $556 million from $131 million a year earlier. Fiscal 2026 additions to property, plant and equipment reached $1.10 billion versus $440.8 million in fiscal 2025, and management expects another sequential capital-spending increase in the current quarter.
Operating cash flow fell to $79.5 million from $633.6 million, while inventory climbed 79.5% to $2.581 billion. The buildup supports expansion, but it also raises working-capital and demand-forecasting risk until production and cash generation catch up.
Coherent Faces a Crowded Execution Calendar
Indium phosphide remains the primary transceiver bottleneck, and nearly every Datacenter and Communications product line is supply constrained. Coherent must simultaneously scale 1.6-terabit transceivers, optical circuit switching, co-packaged optics, multi-rail products and six-inch wafer production while Industrial demand remains weak.
Lumentum Holdings Inc. (LITE - Free Report) is also expanding U.S. manufacturing for advanced lasers serving AI data centers. Applied Optoelectronics, Inc. (AAOI - Free Report) is ramping 800-gigabit and 1.6-terabit transceiver capacity and expects demand to outpace production through mid-2027, underscoring the manufacturing race across AI optics.
COHR's Momentum Signal Is Strong but Mixed Elsewhere
The decline has lowered the entry price, but valuation is not clearly cheap. COHR trades at 26.5X forward 12-month earnings, above the Zacks sub-industry's 20.2X and equal to its five-year median multiple. Durable AI demand and expanding margins support upside, while weak cash conversion and overlapping ramps argue for selectivity.
Coherent has a Momentum Score of A. The Zacks Consensus Estimate for fiscal 2027 earnings has risen 13.0% over the past four weeks, supporting the favorable near-term signal. Still, a Value Score of D, Growth Score of F and VGM Score of F temper the broader Style Score picture and keep execution and valuation risks in focus.
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COHR Falls 17% in a Month: Is the Sell-Off an Opportunity?
Key Takeaways
Coherent Corp. (COHR - Free Report) shares have fallen 17% in the past month despite rapidly improving operating results. Fiscal 2026 revenues climbed 22.5% to $7.12 billion as AI-driven Datacenter and Communications demand accelerated.
Image Source: Zacks Investment Research
The investment debate now centers on whether Coherent can convert its record demand visibility into profitable cash flow. Rising capacity spending, working-capital needs and several overlapping product ramps keep execution risk elevated even as the growth runway lengthens.
COHR's AI Demand Backdrop Remains Strong
Datacenter and Communications generated $5.27 billion in fiscal 2026 revenues, up 40.5% year over year, and represented 79% of fourth-quarter revenues. Fiscal 2027 is essentially booked through the end of calendar 2027.
Customer orders now extend into calendar 2028, while long-term agreements reach through the end of the decade. Coherent also expects quarterly revenues to exceed $3 billion by the end of fiscal 2027, supported by capacity growth and new optical platforms.
Coherent's Margin Expansion Supports the Bull Case
Adjusted gross margin reached 40.2% in the fiscal fourth quarter, up 215 basis points year over year. Full-year adjusted gross margin improved 152 basis points to 39.4%, helped by lower input costs, better manufacturing yields and pricing optimization.
Six-inch indium phosphide wafers offer roughly four times the output at about half the cost of three-inch wafers, while yields are also higher. As that platform scales, management expects further margin improvement from its lower cost structure.
COHR's Cash Flow and Capex Raise Near-Term Risk
Fourth-quarter capital expenditures jumped to $556 million from $131 million a year earlier. Fiscal 2026 additions to property, plant and equipment reached $1.10 billion versus $440.8 million in fiscal 2025, and management expects another sequential capital-spending increase in the current quarter.
Operating cash flow fell to $79.5 million from $633.6 million, while inventory climbed 79.5% to $2.581 billion. The buildup supports expansion, but it also raises working-capital and demand-forecasting risk until production and cash generation catch up.
Coherent Faces a Crowded Execution Calendar
Indium phosphide remains the primary transceiver bottleneck, and nearly every Datacenter and Communications product line is supply constrained. Coherent must simultaneously scale 1.6-terabit transceivers, optical circuit switching, co-packaged optics, multi-rail products and six-inch wafer production while Industrial demand remains weak.
Lumentum Holdings Inc. (LITE - Free Report) is also expanding U.S. manufacturing for advanced lasers serving AI data centers. Applied Optoelectronics, Inc. (AAOI - Free Report) is ramping 800-gigabit and 1.6-terabit transceiver capacity and expects demand to outpace production through mid-2027, underscoring the manufacturing race across AI optics.
COHR's Momentum Signal Is Strong but Mixed Elsewhere
The decline has lowered the entry price, but valuation is not clearly cheap. COHR trades at 26.5X forward 12-month earnings, above the Zacks sub-industry's 20.2X and equal to its five-year median multiple. Durable AI demand and expanding margins support upside, while weak cash conversion and overlapping ramps argue for selectivity.
COHR currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Coherent has a Momentum Score of A. The Zacks Consensus Estimate for fiscal 2027 earnings has risen 13.0% over the past four weeks, supporting the favorable near-term signal. Still, a Value Score of D, Growth Score of F and VGM Score of F temper the broader Style Score picture and keep execution and valuation risks in focus.