Citi Upgrades Lumentum to Buy, Sees Further Upside

Citi initiated coverage on Lumentum Holdings with a Buy rating, citing the company's AI optics leadership and diversified portfolio. The brokerage expects Lumentum to benefit from supplying key components for various applications, including autonomous vehicles, industrial automation, and healthcare. Citi believes the stock has more upside beyond its current 60.17% year-to-date rise.

Citigroup has initiated coverage on Lumentum Holdings (NASDAQ:LITE) with a Buy rating and a target price of $165, representing a 22% upside from the stock's current level. The brokerage expects the company to benefit from its diverse and versatile AI optics portfolio, which supplies key components for pluggable, Optical Circuit Switch (OCS), and Co-Packaged Optics (CPO) [1].

Analyst Papa Sylla at Citi believes Lumentum is well-positioned to outpace both the company and the Street’s longer-term expectations. The analyst expects Lumentum to continue benefiting from its industry-leading Electro-absorption Modulated Laser (EML) and new AI products in emerging markets such as OCS and CPO. Sylla noted that Lumentum is likely to maintain its leadership position in AI EML lasers, with a market share of around 50% [1].

Citi also anticipates Lumentum to hold about 50% of the AI EML market share and a low-single-digit share of AI transceivers by FY2026. Beyond the AI story, the analysts are bullish about the company’s higher growth perspective and faster margin expansion compared to peers like Coherent (COHR). The brokerage models sales growing at a 29% CAGR over the next three fiscal years [1].

Overall, Wall Street analysts have rated LITE as Buy, with Seeking Alpha analysts giving it a Strong Buy rating. In the past year, California-based Lumentum has gained over 141%, far outpacing the S&P500 index’s 16% rise [1].

References:
[1] https://seekingalpha.com/news/4490536-citi-initiates-lumentum-coverage-with-buy-citing-ai-optics-leadership