Jefferies starts Coherent with 'buy' on optimism around new CEO

Investing.com -- Jefferies started coverage on Coherent Inc (NYSE:COHR) with a “buy” rating, giving stock a target price of $135, citing optimism around new chief executive Jim Anderson’s restructuring strategy in its streamlining efforts.

Brokerage noted Anderson’s strong track record at Lattice (OTC:LTTC) Semiconductor. Said key areas for improvement include pruning underperforming businesses, discontinuing unproductive R&D programs, outsourcing manufacturing, optimizing product pricing, and reducing costs through ERP system integration.

“Coherent wasn’t a very well-run company. The business is an amalgam of many M&A deals. They have too many ERP systems, real estate facilities and manufacturing sites. Since the II-VI/Coherent deal, they’ve spent nearly $500M on restructuring, yet they haven’t achieved any significant financial benefits,” Analyst said

Jefferies projected that restructuring, coupled with business growth, could raise Coherent’s annual earnings to over $6 per share by 2026, up from a current run rate of $3 per share.

Estimates include $1.75 in incremental EPS gains from restructuring measures and an additional $1 from revenue growth. The sale of Coherent’s silicon carbide (SiC) business could contribute another $0.65 per share, the note added.

Coherent’s datacom transceivers, which make up nearly half its revenue, were identified as a strong growth driver, especially given the surge in demand for AI and GPU clusters. Jefferies believes the company is well-positioned to benefit from the ongoing shift to third-party merchant suppliers in this market.

Analyst see potential for the price-to-earnings multiple to expand further, given upside from restructuring, the transceiver business, and recovery in telecom markets.