Bright Future Expected for Lumentum (LITE), Needham Analyst Raises PT to $56

By Carrie Williams

Needham report on lumentumThe optical sector was recently vaulted to new highs thanks to the major drivers like the increased demands from China, as well as an increase in spending for the purchase of advanced gear intended for transitioning to the quicker-than-anticipated 5G (fifth generation) wireless networks. The popular fiber-optic supplier Lumentum Holdings (NASDAQ: LITE) is headed to be in the front line for capitalizing on this phenomenon of fiber optic boom termed Optical Super Cycle.

Analyst Alex Henderson at Needham & Company sees tremendous growth prospects for LITE in the upcoming months due to its many positives.The firm reiterated their Strong Buy rating on the stock raising the price target from $50 to $56. Lumentum currently trades at $36.70, which is slightly below its 50 day SMA of $39.07. The $2.25B market cap company has a 52-week high price of $45.25.

Lumentum has recently announced their FQ1 EPS of $0.49 that beat the street estimates by $0.05. The $258.1 million revenue (+21.4% YoY) reported was well ahead of the expected $251.9 million. The December Quarter EPS Guide announced was also higher than the estimates (EPS of $0.47-$0.55 versus Street at $0.49). Telecom Revenues reported an increase of 14% QoQ and 25% YoY while 100G Data Comm grew 248% YoY.

Although the quality issues of OEM decreased the Data Comm Revenues of the company’s September quarter by $10 million and also impacted December quarter by ~6 to 7 million, the issue has been resolved. Henderson expects this issue to be offset by the positives like Double Digit Production Capacity Adds on critical products (ROADMs, Pump Lasers, and 100G Data Comm), visibility of strong demand for the products in CY17 for Telecom and Data Comm, and upcoming huge business opportunity in 3D Sensing in Smart Phones. A huge demand is also anticipated for ROADM from China quite soon, as China Mobile has already completed trials in 3 cities in China.

Even though a slowdown in expected for LITE in CY1Q17 March quarter due to a seasonally slower demand and annual price reductions, analysts believe that this time revenues would be either flat or slightly higher due to the increase in demand out of China as well as the Data Comm 100G architectures ramping. Henderson expects TrueFlex ROADMS segment to grow over 50% in CY17 as well as in CY18.

According to the average rating provided by the 8 analysts providing rating on the stock, Lumentum has a Moderate Buy consensus rating, according to TipRanks.com. The analysts have an average price target of $42.21 for LITE, which is a 12.71% upside from the current levels.

Lumentum Holdings is a provider of optical and photonic products for a range of end market applications, including data communications (Datacom) and telecommunications (Telecom) networking and commercial lasers (commercial lasers) for manufacturing, inspection and life-science applications. The company operates in two segments: Optical Communications (OpComms) and Commercial Lasers (Lasers).