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from the world of economics and financeThe stock price of Coherent Inc. (NYSE: COHR), a semiconductor company, trades at $70 per share, about 30% below its peak level of $100 seen in February 2021. In contrast, Lattice Semiconductor (NASDAQ: LSCC) stock saw a 15% decline. COHR stock was trading at $71 in early June 2022, just before the Fed started increasing rates, and is now close to that level, compared to a substantial 40% gain for the S&P 500 during this period. Our detailed analysis of Coherent’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.
Coherent stock saw a solid 22% rise, on Monday, June 3, after the company announced a new CEO – Jim Anderson – who was earlier heading Lattice Semiconductor. Under his leadership, Lattice saw its stock surge a spectacular 12x from $8 in Sep. 2018 to $98 earlier this year. Given the strong performance of Lattice in the last six years, investors have given a thumbs up to Coherent stock after its change in leadership.
The performance of COHR stock with respect to the index over the last three years has been lackluster. Returns for the stock were -10% in 2021, -49% in 2022, and 24% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that COHR underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and RTX, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could COHR face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? The $68 average of analysts price estimates is close to the current market price of $70, implying that after its recent surge, COHR stock appears fully valued.
2022 Inflation Shock
Timeline of Inflation Shock So Far:
In contrast, here’s how COHR stock and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
Coherent and S&P 500 Performance During 2007-08 Crisis
COHR stock declined from $18 in September 2007 to $9 in March 2009, as the markets bottomed out, implying it lost 49% of its pre-crisis value. It recovered to $16 levels in early 2010, reflecting a solid 77% growth between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.
Coherent’s Fundamentals Over Recent Years
Coherent’s revenue increased 2.2x from $2.4 billion in 2020 to $5.2 billion in 2023, and $4.6 billion over the last twelve months. II-VI acquired Coherent in 2022 and renamed the company as Coherent. The laser business of the legacy Coherent has driven the sales growth in recent years. Coherent’s earnings per share stood at $(2.93) in 2023, versus $(0.79) in 2020.
Does Coherent Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?
Coherent’s total debt surged from $2.4 billion in 2020 to $4.5 billion now, while its cash increased from $493 million to $822 million over the same period. The company garnered $634 million in cash flows from operations in 2023. The company has a high debt, but it should be able to meet its near-term obligations. Its debt as a percentage of equity currently stands at around 42%.
Conclusion
With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe COHR stock has the potential for more gains once fears of a potential recession are allayed. While its stock may see some positive action from the recent change in leadership, it is unlikely to see the levels it was trading at in 2021, anytime soon. Furthermore, high debt levels remain a near-term concern for the company.
Returns | Jun 2024 MTD [1] | 2024 YTD [1] | 2017-24 Total [2] |
COHR Return | 23% | 61% | 136% |
S&P 500 Return | 0% | 11% | 136% |
Trefis Reinforced Value Portfolio | 0% | 4% | 639% |
[1] Returns as of 6/4/2024
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.