Coherent (NYSE:COHR) shares rose more than 2% intra-day today after Deutsche Bank raised its price target on the company to $56.00 from $40.00 while maintaining its Buy rating.
The firm noted that Coherent shares have experienced a year-to-date increase of approximately 50%, driven by growing optimism regarding the impact of AI on the growth of optical networking transceivers.
While there may be differing opinions on the timing of revenue growth, the bank noted that the secular need for higher speed/higher bandwidth supports its belief that Coherent's Comms business will achieve a long-term CAGR of 15% or more.
In the short term, the bank acknowledges the potential risks associated with ongoing inventory digestion among networking customers. However, the firm has already taken these factors into account in its revenue estimate for fiscal 2024, which is below the Street consensus.
Considering its strong confidence in the company's long-term growth prospects in the Comms sector and its belief that the ongoing strategic review of the SiC business could unlock value for shareholders, Deutsche Bank believes that Coherent stock should no longer trade at a discount to its historical average.