UBS: Lumentum Holdings (LITE.US) Resetting Numbers Following a Raise and Channel Checks
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Following Lumentum's upward revision of its financial guidance and comprehensive channel checks, UBS updated its financial models for the company. The firm maintains a Buy rating and raises its target price from $85 to $95. Lumentum is benefiting from surging artificial intelligence demand within data centers, particularly the ramp of 800G and 1.6T optical transceivers, alongside a recovery in the broader telecommunications market.
Lumentum raised its fiscal 2026 first quarter revenue guidance to a range of $350 million to $380 million, well above UBS's prior estimate of $320 million. Channel checks indicate that customer inventories have normalized and order visibility is improving. The company expects data center revenue to grow more than 50% year-over-year, while telecommunications revenue is projected to increase by 20% to 30%, driven by coherent pluggable product demand. Gross margins are forecasted to improve to a range of 45% to 47% due to favorable product mix shifts.
Consequently, UBS increased its fiscal 2026 EPS estimate to $4.50, up from $4.00. Management also indicated that second quarter revenue will fall between $360 million and $390 million. UBS views Lumentum's current valuation as attractive, trading at roughly 18 times forward earnings. The firm notes that Lumentum holds a leading position in high-speed optical modules. Key downside risks include a slower telecommunications recovery, intensifying competition, and potential supply chain disruptions.
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