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Lumentum Holdings Inc (NASDAQ:LITE) reached an agreement to acquire Oclaro Inc (NASDAQ:OCLR) in a deal that makes "strong strategic sense" for the companies and highlights the longer-term potential of the optical sector, according to Craig-Hallum Capital Group.
The Analyst
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Analyst Richard Shannon maintains a Buy rating on Lumentum Holdings' stock with an unchanged $90 price target.
The Thesis
Oclaro's combination with Lumentum makes sense on a strategic and financial level, Shannon said in a Tuesday report.
On the strategic front, Oclaro provides a strong leading edge product in the telecom industry with coherent transmission products, an area where Lumentum has lagged in recent quarters, the analyst said. On the financial front, the combination should be accretive to Lumentum's business by around 10 percent based on expectations of $60 million in annual synergies, he said.
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Lumentum's acquisition is also a "potential starting point" for increased consolidation activity within the optical space, Shannon said. The industry has become too fragmented, and Lumentum's M&A deal will likely "spark other moves," he said — meaning optical stocks are likely to become "healthier," with more favorable longer-term pricing.
Lumentum is one of Craig-Hallum's top ideas for 2018, the analyst said.
Price Action
Lumentum shares were trading down slightly at $71.95 late Tuesday afternoon.
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New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.