Lumentum's Intended Sale Of Oclaro Assets Turns RayJay Incrementally Bullish

Lumentum Holdings Inc LITE has announced its intention to sell the transceiver business of its subsidiary Oclaro Japan to Cambridge Industry Groups.

The move underlines the company’s strategy to focus on “profitable and growing opportunities,” according to Raymond James.

The Analyst

Raymond James’ Simon Leopold maintained a Strong Buy rating on Lumentum and raised the price target from $75 to $78.

The Thesis

The sale of Oclaro’s optical transceiver product lines will allow Lumentum to focus on more attractive opportunities in optical switching, 3D sensing, high speed transmission and industrial lasers, Leopold said in a Wednesday note. 

The financial details of the sale, which is expected to close in the second quarter, have not yet been disclosed, the analyst said. The company said revenue from the business will contribute around $20 million to its datacom revenue guidance of $50-$55 million for the third quarter, he said. 

Raymond James lowered the sales estimates for FY19 and FY20 from $1.607 billion to $1.580 billion and from $2.027 billion to $1.907 billion, respectively. The mix shift resulting from the sale of the Japan assets will more than offset the hit to revenues and result in margin expansion, Leopold said. 

Raymond James revised its FY19 and FY20 EPS estimates from $4.31 to $4.25 and from $4.62 to $4.83, respectively. 

Price Action

Lumentum shares were up 0.5 percent at $51.76 at the time of publication Thursday. 

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