MKM Partners, Rosenblatt Remain Lumentum Bulls After Q3 Print

Optical and photonic products maker Lumentum Holdings Inc LITE reported fiscal third-quarter results Tuesday that came in better than expected and prompted at least two Street analysts to reiterate their bullish stances. 

The Analysts

MKM Partners' Michael Genovese maintained a Buy rating on Lumentum Holdings with a price target lifted from $66 to $72.

Rosenblatt Securities' Jun Zhang maintained at Buy with an unchanged $80 price target.

MKM: Solid Report

Lumentum's earnings report was solid and highlighted by a revenue beat and several misses that can be explained, Genovese said in a Wednesday note.

For example, optical telecom sales of $243 million missed MKM's expectations by $3 million, although this can be attributed to supply constraints, the analyst said. 

Lumentum's fiscal fourth-quarter revenue guidance of $405-$425 million may appear to fall short of MKM's prior estimate of $435 million, Genovese said. The shortfall is the result of Lumentum divesting a datacom transceiver business during the fiscal third quarter, which was not reflected in the research firm's model, he said. 

3D sensing sales in the fiscal third quarter were likely $67 million, and an Android customer — perhaps Huawei — contributed more than $10 million in sales, Genovese said. The outlook for the 3D sensing business looks strong in fiscal 2020 and beyond, and the analyst said Lumentum looks to be taking a less promotional stance than before.

Rosenblatt: ROADM Business Strength

Lumentum's post-earnings conference call confirms the strong demand in the telecom market for reconfigurable optical add-drop multiplexers, or ROADM, and pump lasers, Zhang said in a Tuesday note.

Demand for ROADM exceeds supply and could grow higher moving forward, as China isn't believed to be building ROADM or pump laser inventory, the analyst said. 

Lumentum's management believes it has a few years' head start in terms of ROADM products, which may have helped the 80-percent year-over-year sales growth in the quarter, Zhang said. 

The company also said it expects sales to continue growing, with the potential for capacity constraints as far out as the September-ending quarter.

Price Action

Lumentum shares were down 1.1 percent at $59.60 at the time of publication Wednesday. 

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