Morgan Stanley Coherent Corp: Not Seeing Full Benefit of Order Book Yet
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Morgan Stanley maintains an Equal-weight rating on Coherent Corp (COHR), raising the price target to $200 from $190. While the company's FQ2 revenue of $1.69 billion and EPS of $1.29 slightly exceeded estimates, gross margins disappointed the market, lagging competitors who demonstrated stronger pricing power. However, the investment thesis remains supported by a book-to-bill ratio exceeding 4x, with orders visibility extending well into 2026 and rapidly filling the 2027 calendar year. The company is on track to double its internal indium phosphide (InP) capacity by late 2026, addressing long-term supply tightness. Additionally, Coherent secured an exceptionally large purchase order for Co-Packaged Optics (CPO), with initial revenue expected in late 2026 and scaling notably in 2027. Optical Circuit Switching (OCS) customer engagement has expanded to over ten firms, targeting a total addressable market above $2 billion. Morgan Stanley raised its FY26 and FY27 revenue estimates to $6.92 billion and $8.468 billion, respectively, driven by robust 1.6T transceiver demand and early capacity bring-up. EPS forecasts increased to $5.42 and $7.12 for the respective years. The $200 target price is based on 28x FY27 estimated EPS, reflecting a premium for AI exposure. The bear and bull case targets stand at $100 and $285.