Lumentum's stock surges, giving a further boost to the optical-networking trade

By Hannah Pedone

Excitement is building for Coherent's earnings report after upbeat results from Lumentum

Shares of Lumentum rose 13.6% on Wednesday.

Lumentum Holdings sees big opportunities in its future, and that's reason enough for investors to cheer the broader optical-electronics industry on Wednesday.

Shares of Lumentum (LITE) climbed 13.6% on Wednesday after the company issued a forecast that exceeded analysts' expectations and talked up promising initiatives that could pay off over the long run.

J.P. Morgan analyst Joseph Cardoso noted that Lumentum's management signaled that there are opportunities in the pipeline around lasers and other optical equipment that largely aren't yet factored into the company's broader financial targets.

"Lumentum is not only executing ahead of the plan tied to the opportunities discussed just a few months ago and embedded in target ranges, but is also outlining sizable incremental opportunities beyond that framework," Cardoso wrote.

He noted that the company's earnings materials "debunked" investors' medium- to long-term concerns around the company's co-packaged and near-packaged optics products, noting that CPO production "remains on track."

As the company achieves notable growth - sales more than doubled in the latest quarter - it's also impressing Wall Street with its profit performance.

Lumentum's adjusted gross margin came in at 50.4%, exceeding the 48% that analysts had projected. CEO Michael Hurlston said on the earnings call that Lumentum had expected to hit the 50% milestone once its quarterly revenue run rate reached $2 billion, but reached the threshold well before that point.

Raymond James analyst Simon Leopold also noted that Lumentum's management doesn't consider Chinese competition for data-center laser production to be a major threat, though he said the situation is worth monitoring.

Lumentum faced a high bar going into earnings, Daniel O'Regan, managing director at Mizuho, pointed out in a Wednesday note to clients, noting that optical stocks had rallied over 40% in the week leading up to the report.

He said the company's results and guidance should come as a positive signal for the rest of the optical-networking industry - particularly Coherent (COHR), which reported am earnings beat on Wednesday after the bell.

Coherent's stock rose 8.2% on Wednesday. but slipped 4% after hours.

See also: Software stocks are fading - but these 4 could shine through the rest of the year

-Hannah Pedone

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08-12-26 1831ET