Coherent Corp. (NYSE:COHR) - A Close Look at Fiscal Q4 2023 Results and Fiscal 2024 Outlook

Mid Caps 5 replies 0 votes 2021 views Tags:  AI/MLCoherent Corpearnings reportLaser TechnologyNetworking SegmentNYSE:COHROptical CommunicationPhotonicsprofitabilityrevenue growth

I want to dive into the recent earnings report from Coherent Corp. (NYSE:COHR) and share some insights on what's been happening with this optical communication modules supplier.

As I delved into Coherent's fiscal Q4 2023 results, I couldn't help but notice that it didn't quite live up to the expectations. The guidance for fiscal 2024 left investors underwhelmed, to say the least.

Heading into this earnings report, there was a glimmer of hope that the Artificial Intelligence and Machine Learning (AI/ML) growth story, a part of Coherent's Networking segment, would paint a rosy picture for fiscal 2024. Unfortunately, that wasn't the case.

What's most concerning is the downward trend in Coherent's bottom-line profitability. Frankly, this setup doesn't make it easy to stay bullish.

Coherent's Bread and Butter: Photonics and Laser Technology

Coherent is known for its expertise in photonics and laser technology, offering solutions for various applications, including industrial manufacturing. Photonics, for those not in the know, deals with the science and technology of generating, detecting, and manipulating light.

Coherent's products are the backbone of technological advancements in industries that rely on precise and powerful light-based tools. These guys produce lasers that emit intense and focused beams of coherent light with unique properties, which find applications in areas like semiconductor wafer inspection and various industrial processes.

Revenue Growth Rates Take a Hit

Now, let's talk numbers. Coherent's revenue growth rates for the coming year don't paint a pretty picture. To be honest, it's more than a little grim.

Investors had their sights set on fiscal Q4 2023, expecting mid-30% year-over-year growth rates. Surprisingly, Coherent actually beat these consensus estimates, but that didn't seem to matter much.

In fact, Coherent's pro-forma revenues were down 4% year-over-year. What's clear is that the year ahead will be a tough one. Investors are starting to think that fiscal 2023 might have been as good as it gets for a while.

Let's be real; no one was expecting fiscal 2024 to mirror 2023. Analysts had already predicted very low single-digit negative growth rates for next year. But investors were holding out hope for better news. Instead, Coherent dropped the bombshell that it expects negative 8% year-over-year revenue growth rates.

For a company that just reported relatively strong growth rates, albeit negative 4% on a pro-forma basis, starting off with negative double-digit revenue growth rates for the next year was a tough pill to swallow.

Profitability Takes a Hit

Now, let's discuss profitability. The forecast for fiscal Q1 2024 indicates about $0.20 of non-GAAP EPS, compared to $1.04 from a year ago. That's a significant drop.

Firstly, not many investors expected Coherent to guide for $0.20 of non-GAAP EPS for fiscal Q1 2024. That's roughly half the profitability of the just-reported fiscal Q4 2023.

More importantly, these lackluster results aren't just a one-quarter blip. They're expected to persist for most of fiscal 2024. Looking at the full year, Coherent's non-GAAP EPS is projected to be around $1.50, which puts its valuation at about 24 times forward non-GAAP EPS.

So, let's put this valuation into context. Coherent's stock price had surged over 50% recently, primarily due to an expanding multiple. This happened as investors bet on AI/ML delivering strong prospects. However, Coherent hasn't traded at this high multiple in the past three years. That's not to say it can't, but premium valuations typically require revenue growth, not a decline.

The Bottom Line

In a nutshell, Coherent disappointed investors with its fiscal Q4 2023 results and lackluster guidance for fiscal 2024. The hope that the AI/ML growth story within its Networking segment would drive a better outlook for the upcoming year was dashed.

Moreover, the company's profitability outlook is a cause for concern, with a substantial decline in non-GAAP EPS projected for fiscal Q1 2024 and beyond.

Coherent Corp.'s negative revenue growth rates and deteriorating profitability raise doubts about its valuation, as the stock's multiple expanded due to optimism around AI/ML prospects, even though it has not historically traded at such premium levels. As investors, it's essential to stay vigilant and monitor the company's performance closely in the coming quarters.

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