Jefferies Initiates Coverage on Coherent Inc

Jefferies has begun coverage on Coherent Inc (NYSE:COHR) with a “buy” rating and set a target price of $135. This optimism stems from new CEO Jim Anderson’s restructuring strategy aimed at streamlining operations.

Key Areas for Improvement

The brokerage highlighted Anderson’s strong history with Lattice Semiconductor and identified several essential areas for Coherent’s improvement:
– Pruning underperforming businesses
– Discontinuing unproductive R&D programs
– Outsourcing manufacturing
– Optimizing product pricing
– Reducing costs through ERP system integration

The analyst noted, “Coherent wasn’t a very well-run company… they have too many ERP systems, real estate facilities, and manufacturing sites. After spending nearly $500M on restructuring since the II-VI/Coherent deal, substantial financial benefits have yet to materialize.”

Earnings Projections

Jefferies forecasts that restructuring along with business growth could elevate Coherent’s annual earnings to over $6 per share by 2026, an increase from the current rate of $3 per share. This estimate includes:
– $1.75 from restructuring
– $1 from revenue growth
– An additional $0.65 from the sale of Coherent’s silicon carbide (SiC) business.

Growth Drivers

Coherent’s datacom transceivers, which account for nearly half of its revenue, were noted as a significant growth driver, particularly due to increasing demand for AI and GPU clusters. Jefferies believes the company is positioned to benefit from the shift to third-party merchant suppliers in this sector.

Future Prospects

Analysts see potential for expansion in the price-to-earnings multiple, driven by restructuring gains, growth in the transceiver business, and recovery in the telecom markets.