Stifel Names Lumentum Top Near-Term Pick in Optical Components, Citing Growth Outlook

Stifel has revised its outlook on the optical components sector, naming Lumentum Holdings (NASDAQ: LITE) its new top near-term pick. The firm's updated analysis shifts its preference from Coherent (NASDAQ: COHR), citing Lumentum's more favorable growth trajectory and margin potential now that valuations between the two competitors have converged.

Valuation Convergence Sparks Shift

The primary driver for Stifel's change in preference is the recent alignment in stock valuations. According to the firm's analysis, both Lumentum and Coherent are now trading at approximately 29 times their consensus 2027 earnings per share (EPS).

Stifel noted that the valuation argument that previously favored Coherent, particularly after the Optical Fiber Communication Conference, has now largely dissipated. This parity in valuation multiples prompted a reassessment based on other fundamental factors like revenue growth and margin structure.

Lumentum's Stronger Outlook

Stifel highlighted Lumentum's steeper revenue trajectory and potential for a stronger medium-term margin structure as key reasons for its upgraded status. The firm emphasized Lumentum's strategic position in a key market segment.

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Key factors supporting Stifel's view on Lumentum include:

• It is the primary merchant supplier of external modulator lasers.
• This market is experiencing a significant supply and demand imbalance, which Lumentum management estimates is approximately 30% and widening.
• This imbalance is expected to provide Lumentum with continued pricing leverage in the near term.

Sector Context

Despite the change, Stifel maintains a constructive view on Coherent. The firm acknowledged positive developments for the company, including its progress with 6-inch indium phosphide technology and ramps in its optical circuit switch and co-packaged optics products.

In other recent news, Lumentum announced it will be added to the Nasdaq-100 Index, effective before the market opens on May 18, 2026. Meanwhile, Coherent signed a letter of intent for up to $50 million in CHIPS Act funding and secured a three-year supply agreement with AXT Inc. for indium phosphide wafer substrates.