Stock Analysis
Lumentum Holdings Inc. (LITE)
NASDAQ: LITE · Optical Components and Modules
Updated
Rated Watchlist, with a fair value of $837.52 against a last close of $752.54 (+11.3% implied upside). Lumentum fell into the old $750-$800 range in a sector-wide AI hardware sell-off with fiscal 2028 consensus unchanged at $36.02, but lower peer multiples cut the weighted value to $837.52, so it stays on Watchlist with interest reset to $700.
- Verdict
- Watchlist
- Fair Value
- $837.52
- Investment Score
- 65/100prev 67
Technical read (chart only): Confirms as of Downtrend, with the first close below the 200-day average of this move on 22 October and the price 18.9% under a still-rising 50-day, which agrees with waiting; watch for a close back above the 200-day near $786 followed by a higher low, with the 30 July closing low of $693.24 the next reference below.The Watchlist verdict comes from the fundamentals alone. The technical read looks only at the price chart. It does not change the verdict or the score and only guides entry timing.
Investment Scorecard
Composite score 65/100 (previous 67). Every factor is scored out of 10, ten always being the best outcome, including for risk.
| Factor | Score | Weight | Change | Basis |
|---|---|---|---|---|
| Business Quality | 7/10 | 15% | -1 vs last report | Indium phosphide laser capacity booked into early 2029 and a 50.4% non-GAAP gross margin, held back by dependence on a few hyperscale buyers whose spending plans the market questioned on 22 October. |
| Financial Strength | 6/10 | 15% | unchanged | Net cash $1.07bn, but $1.6bn of convertible debt is classed as current and trailing free cash flow of $300m is a 0.44% yield; none of these inputs moved in the week. |
| Competitive Advantage | 8/10 | 15% | unchanged | No second high-power laser source is qualified at a major customer, and Coherent's competing part is still expected in the second half of 2027. |
| Management | 7/10 | 10% | unchanged | Four straight quarters ahead of guidance; the ~$40 fiscal 2028 figure stands but still has no contract terms behind it, and officers have kept selling. |
| Growth Potential | 9/10 | 15% | unchanged | Consensus EPS of $21.79 for fiscal 2027 and $36.02 for fiscal 2028, against $8.67 in fiscal 2026, both unchanged on the week; output sets the ceiling. |
| Valuation | 5/10 | 20% | +1 vs last report | 34.5x fiscal 2027 and 20.9x fiscal 2028 consensus, down from 39.9x and 24.1x; the weighted value is 11.3% above the price, but peers now trade at 22.1x (Coherent) and 31.0x (Ciena) forward. |
| Risk (10 = lowest risk) | 3/10 | 10% | -1 vs last report | Higher risk: a daily range of 9.3% of price, an 11.5% one-day fall with no company news, beta 1.54, customer concentration and results on 5 November. |
Recent Developments
| Date | Development | Impact |
|---|---|---|
| Capacity sold out through early 2029 CEO Michael Hurlston said in a television interview that Lumentum's optoelectronic components are effectively sold out through early 2029. Reported from the same interview: about 70% of demand unmet for some products through 2027 and about 30% for others through 2028, with customers placing 2030 orders. No filing, contract terms, prices or prepayments have followed. Reading: Unchanged in substance two weeks on. It supports the multiple rather than fiscal 2028 earnings, because output caps revenue; with it the weighted value is $837.52, without it $754.40. The 13.5% fall since 15 October came with no company news and reflects the sector multiple. | High | |
| Fiscal 2028 earnings power of ~$40 per share CEO figure from the Deutsche Bank conference, repeated at Citi on 9 September and not withdrawn. Consensus FY28 EPS is $36.02 (18 analysts, range $30.38-$40.90), the same as at the previous report, against $39.70 a month earlier. Reading: Still the anchor of the valuation; the base case uses consensus of $36.02. First tested by the 5 November results and December-quarter guide. | High | |
| Japan capacity investment raised Reported: at least $350m planned for Sagamihara and a neighbouring site, with $75m deployed. No update since. Reading: More capacity behind the booked output, but more spending against a 0.44% free cash flow yield. | Medium | |
| US curbs on Chinese optical transceivers Senate bill S.5548 would bar InnoLight and Eoptolink transceivers from national security systems with a five-year transition; no further action reported. Reading: Federal systems only, not hyperscale data centres; no regulatory tailwind is scored. | Medium | |
| Fiscal Q1 2027 results date Results on 5 November 2026 after the close, webcast 5:00 p.m. ET (company release of 5 October). Guide: revenue $1.225-$1.275bn, non-GAAP EPS $4.05-$4.35; consensus EPS $4.21, revenue $1.25bn. Reading: The first hard data on the sold-out statement and the $40 figure. | Low | |
| OCP Global Summit: PCIe over optics and OCS fabrics talk Demonstration with Astera Labs and Corning; OCS fabrics talk co-presented with an Oracle Cloud Infrastructure architect. Reading: Technology and customer-engagement signals only; no order or availability announced. | Low |
Key Risks
| Risk | Probability | Severity | Comment |
|---|---|---|---|
| Sold out proves soft | Low near term | High | No contract terms disclosed; pushouts would show first in the December-quarter guide. |
| Capacity catching up | Low near term | High | New supply from 2028 and Coherent's high-power laser in 2H 2027 could end scarcity pricing. |
| Valuation de-rating | Moderate | High | Peers lost three to four points of forward multiple in a week; an earnings figure two years out is priced off the group. |
| AI spending questioned | Moderate | High | Higher hyperscaler budgets drew a return-on-investment sell-off on 22 October; a budget cut would hit orders and multiple together. |
| Discount-rate shock | Moderate | High | Core inflation firm, producer prices up 1.3% in September and a rate decision on 28 October. |
| Execution on the $40 figure | Moderate | High | Consensus sits below it at $36.02; first tested on 5 November. |
| Customer concentration | Moderate | High | Optical circuit switch orders and the NVIDIA relationship concentrate exposure. |
| Free cash conversion | High | Moderate | 0.44% FCF yield; Japan spending reported at $350m or more. |
| Sector swings | High | Moderate | -11.5% on 22 October with no company news; average daily range 9.3% of price. |
Scenario Analysis
| Case | Probability | Fair Value | Outlook |
|---|---|---|---|
| Bull | 25% | $1,230 | Fiscal 2028 lands above management's ~$40 as optical circuit switch orders pull forward and scarcity pricing holds into fiscal 2029 (sold-out item: success). FY28 revenue near the $11.7bn top of the analyst range; EPS $41.00 at 30x. |
| Base | 45% | $900.50 | Fiscal 2028 meets the $36.02 consensus on revenue near $9.95bn; booked output supports a multiple close to the peer midpoint (sold-out item: base). EPS $36.02 at 25x. |
| Bear | 30% | $416 | AI customers pause to absorb 2026-27 spending, an optical circuit switch order slips and new laser supply erodes pricing; fiscal 2028 about 28% below consensus on revenue near the $7.25bn low estimate, and the multiple resets (sold-out item: failure). EPS $26.00 at 16x. |
The Case
Would new money go into Lumentum at $752.54? Not yet. A sector-wide sell-off took the stock into the $750-$800 range the last report named, while fiscal 2028 consensus held at $36.02 and management still points to about $40 with output booked into 2029.
But the value fell with the price: peer multiples compressed by three to four points in a week, and the weighted value of $837.52 is only 11.3% above the price against a bear case 44.7% below. The name becomes interesting at $700 or below, or on 5 November results that restate the $40 figure with contract terms behind it.
Archived Reports
Beating The Bull keeps every past version of this report on file. Verdicts and numbers reflect what was known when each one was published.
Informational use only. Not financial advice.