Light waves and laser product maker Lumentum should rally for investors who can see past near-term demand challenges, according to JPMorgan. Analyst Samik Chatterjee upgraded the stock, which is known partly for its autonomous driving technology, to overweight from neutral and raised his price target by $6 to $60. Chatterjee’s new price target implies the stock could rally 32.6% from where it finished Friday’s session. “We believe the current valuation is pricing in more headwinds than realistic, even when conservatively considering additional near-term downside to estimates from further share loss in 3D Sensing as well as inventory rationalization from Telecom and Datacom customers,” he said in a note to clients Monday. The stock was up 2.6% in premarket trading. Shares have fallen 13.3% this year. LITE YTD mountain Lumentum shares The company is, he noted, facing a “perfect storm” in terms of demand. The data-communications business has been impacted by the broader challenges facing cloud companies, while the commercial lasers business has felt the macro headwinds cooling industrial activity. Meanwhile, he said Lumentum has faced challenges with equipment vendors who purchase equipment and noted the company could see further declines in its three-dimensional sensing business. But he said lower revenue estimates account for the potential loss in three-dimensional sensing. And Chatterjee said his expectations for the company’s earnings have improved with greater balance sheet flexibility. Looking at the 2025 fiscal year specifically, he upped his earnings estimate to $5.90 from $5.50. He said 2025 should be the year earnings normalize as demand trends stabilize and the company feels the full benefits of planned share repurchases of around $500 million within a two-year period. In the meantime, he said there could be further downside to the consensus estimate for earnings per share in 2023 and 2024. But he noted shares will trade below a 10x price-to-earnings multiple in both years, which is lower than its historic multiple of 13x. That makes an attractive entry point, he said, with “current valuation pricing in more risks than we see as realistic or assuming the lower demand in Telecom and Datacom is structural rather than cyclical.” — CNBC’s Michael Bloom contributed to this report.
