Coherent's Target Price Raised to $74 by Morgan Stanley Ahead of Investor Day

Morgan Stanley has maintained its "hold" rating on Coherent (COHR.US), while raising its target price from $70 to $74. The firm's analyst, Meta Marshall, anticipates that the company's upcoming investor day on May 28 will reveal a long-term growth strategy. This strategy is expected to include achieving a gross margin of over 40%, an earnings per share target exceeding $6, and a revenue growth plan for the years 2025 to 2028.

Marshall acknowledges that the optimistic expectations surrounding the investor day could drive short-term stock price increases. However, she notes that Coherent's stock has already seen significant gains over the past month, partially absorbing potential positive news. The primary reason for maintaining a cautious rating is the substantial challenges Coherent faces in achieving its 40% gross margin target. Global trade tensions could increase raw material costs, and the company's business lines in silicon carbide materials and network technology lack economies of scale. Additionally, the execution of its vertical integration strategy may prove more difficult than anticipated.

Coherent specializes in engineering materials, optoelectronic components, and laser systems, with operations spanning industrial manufacturing, communication networks, and semiconductor equipment. The company holds a strong position in the optical communication market, particularly with its advanced data center optical transceiver products, which serve as a core competitive advantage. Despite these strengths, the company faces significant challenges in maintaining its profitability and growth trajectory. The upcoming investor day will be crucial in addressing these concerns and providing clarity on the company's future prospects.