Citi on Lumentum (LITE.US): NPO Opportunity Stacks on CPO and OCS Ramp; Target Raised to $1,200
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Key Views
Management reiterated that OCS could deliver over $400M revenue in 2H 2026, the CPO timeline is unchanged with the NPO opportunity layered on top, and laser demand remains more than 30% above supply. Citi raised FY2027E/FY2028E sales forecasts by 6%/13% and EPS by 9%/17%, leaving estimates 19%/20% above consensus. Valuation shifts to 35x P/E on discounted FY2028E earnings power of about $37 (from 40x, reflecting peer multiple compression). NPO is incremental to CPO: non-NVIDIA customers embedding 120mW/150mW lasers directly into optical engines add a new opportunity, while the Japan fab reallocates 10–20% of excess EML capacity to CW lasers.
Outlook
Non-GAAP gross margin may surpass the 50.5% long-term target as early as the September quarter; catalyst direction is upside, valid through October 14, 2026.
Recommended Securities
Lumentum Holdings (LITE.O): Buy, target price $1,200.
Key exhibits
Exhibit 1
Exhibit 2
Exhibit 3
