Stifel has updated its view on players in the optical components sector, reordering its near-term preferences after observing a notable convergence in valuations across leading companies.
With multiple manufacturers trading at roughly the same multiple - approximately 29 times consensus 2027 earnings per share - Stifel said it has shifted its near-term ranking criteria away from pure valuation and toward revenue growth trajectories and expected margin structure over the medium term.
Lumentum Holdings now sits at the top of Stifel's near-term list, replacing Coherent as the firm's favored pick in the space. Stifel based the change on what it describes as Lumentum's steeper projected revenue path and the potential for a stronger medium-term margin profile at current equal valuation multiples.
Stifel notes that Lumentum is the primary merchant supplier of external modulator lasers into a market that currently exhibits a pronounced supply-demand imbalance. Management estimates that imbalance at roughly 30% and widening, a condition Stifel expects will sustain near-term pricing leverage for suppliers positioned to serve that demand.
Although Stifel elevated Lumentum, the firm retained a constructive stance on Coherent. The firm pointed to several positive developments at Coherent, including an inflection around 6-inch indium phosphide production and ramp activity in optical circuit switch and co-packaged optics initiatives. Those operational improvements underpin Stifel's continued positive view on Coherent even as Lumentum becomes the near-term preference.
According to Stifel, the valuation case that previously favored Coherent following the Optical Fiber Communication Conference has largely run its course, prompting the reassessment now that multiples between the leaders have aligned.
Separately, Lumentum Holdings announced it will be added to the Nasdaq-100 Index, with that inclusion scheduled to take effect prior to market open on May 18, 2026.
Recent corporate developments at Coherent were also noted. The company signed a letter of intent to receive up to $50 million in CHIPS Act funding to support expansion of its Texas manufacturing facility. Coherent also entered a three-year supply agreement with AXT Inc. for indium phosphide wafer substrates. In addition, BofA Securities raised its price target on Coherent to $400 while maintaining a Neutral rating.
Sector implications
- The shift in analyst preference highlights how convergent valuations can refocus attention on growth and margin fundamentals within the optical components sector.
- Manufacturing developments and wafer supply agreements touch the semiconductor materials and photonics supply chain, with potential implications for equipment makers and optical systems customers.