Coherent opens coverage at Buy following fiscal fourth-quarter results released after the close on August 12. The shares changed hands at $315.00 on August 18, down 10.3% on the day and 28% below the June high of $440.

The bull case

Fiscal 2026 was the year Coherent’s position in AI data centre optics reached the accounts. Revenue of $7.12 billion rose 22.5%, non-GAAP earnings per share rose 59% to $5.61, and the company swung from an $80.6 million net loss to $769.9 million of GAAP net income. The June quarter beat consensus by 3.5% on revenue and 7.4% on earnings, with the datacenter and communications segment up 58.6% and now 79% of the business.

Guidance mattered more. Management guided the September quarter roughly 8% above the street on revenue and 10% on earnings, and told investors to expect the company’s first $3 billion quarter by the end of fiscal 2027. That year is described as fully booked, purchase orders extend into calendar 2028, and long-term agreements carry take-or-pay minimums and agreed pricing through the end of the decade. Gross margin has expanded in eight of the last nine quarters. The binding constraint is indium phosphide capacity, which is being doubled a quarter ahead of schedule.

The bear case

None of it is cash yet. Capital expenditure tripled to $1.10 billion and reached $556 million in the June quarter alone, with management guiding higher again. Operating cash flow collapsed 87.5% to $79.5 million as inventory rose 79.5% to $2.58 billion, and free cash flow swung from positive $192.8 million to negative $1.02 billion. Roughly $2 billion of equity was issued during the year, lifting the weighted diluted share count about 21%.

August 18 showed what that exposure costs. Fabrinet reported before the open, beat on both lines, and was sold down anyway because gross margin slipped 30 basis points and free cash flow turned negative on a capital spending surge. Coherent fell 10.3% on a competitor’s cash flow statement without a figure in its own accounts changing. Rising Treasury yields amplified the move but explain only about two points of it.

Where that leaves the call

The report scores the company 63 out of 100 and settles on an accumulation band of $285 to $315 rather than a single entry price. At $315.00 the shares trade on 32.5 times a fiscal 2027 estimate of $9.70, and a probability-weighted fair value of $368 implies 17% upside. Buying the whole position at the top of the band cuts the risk-reward from 2.5 to one down to 1.6 to one, which is the argument for scaling in.

The full scorecard and trade plan appear in the complete Coherent (COHR) report on our Reports page.